Telit Communications Plc : Well Placed To Perform Better In The Second Half of 2019

Telit Communications Plc : Well Placed To Perform Better In The Second Half of 2019

Telit Communications Plc

Business Overview

Alternative Investment Market Listed- Telit Communications Plc is a London, the United Kingdom headquartered company and engaged in the business of communications and networking services. The group, through its brand Telit Wireless Solutions, provides machine-to-machine communication, cellular, positioning modules and short-range services. The group is engaged in the development and marketing of global navigation satellite systems, cellular, short-range and long-range wireless modules, and mobile connectivity services. Its geographical areas of operations divided into a segment like EMEA, APAC, and the Americas. Its outstanding market capitalisation of £213.34m ranks it among the small-cap companies listed on the London Stock Exchange.

As on April-04-2005, shares of the TCM got listed on the Alternative Investment Market of the London Stock Exchange for trading and a constituent of FTSE AIM All-Share, and FTSE AIM All-Share- Technology indices.

Half Yearly Trading Update

In the exchange filing made by the group as on July 17, 2019, the group reported its trading update for the first six-month ended June 30, 2019. During the period under consideration, the global enabler of the Internet of Things (IoT) reported revenue of $179.5m from continuing operations and recorded a growth of 7.2% against $167.5m recorded in the First half of 2018. After considering two months contribution extended by the automotive business, which was disposed of in February 2019, group's total revenue during the reported period was approximately $189.5m against $201.7m recorded in the year-ago period.

The group also expects profitability to report continued improvement with positive profit in cash in the first half of FY19 against the loss in cash reported in the first half of FY18 of $5.7m. At the end of the reported period, the company's reported net cash position stood at $44.0m against the net debt of $34m recorded in FY18. The group is expected to present its interim statement in September 2019.

Mr Paolo Dal Pino, Chief Executive of the group, commented that the group is now well organised with an increased concentration on the Industrial IoT products and services, also improving the overall profitability of the group and we are on track to achieve our targets both operational and financial.

In February 2019, the group completed disposal of its Telit Automotive Solutions NV to TUS and in lieu the group received a total consideration of $105m, out of which the group received $67.5m in cash, which takes into account $1m cash and working capital position of the sold business and it also accorded TUS a short-term vendor loan of $38.5m.

In the transaction executed, the TUS group took control of businesses of Telit Belgium along with its wholly-owned subsidiaries in Israel, Germany, France and Korea. All these businesses accounted for less than 20% of the group's revenue and employed around 120 employees, who are instrumental in the automotive business across global R&D. Both employees and sales offices will get transferred with the sale.

The vendor loan, which was extended by Telit was subject to get repaid in full within the six months post completion of the sale transaction. TUS has pledged all the shares of Telit Belgium till certain bank financing that is currently at its final stage negotiations.

The proceeds of the sale transaction would be utilised towards reducing the group's debt position and reduce the balance sheet risk of the company.

“The sale of our automotive business is a crucial milestone achieved by the group; it will vacate internal resources and offer substantial cash inflow. And, the extended vendor loan allowed to execute the transaction mentioned above immediately", Paolo Dal Pino, the Chief Executive of Telit said.

He also added that the group has now financial head rooms and adequate resources to ramp up the integration of hardware products and IoT services and it will enable to focus on increasing shareholder and customers value.

Financial Highlights: (FY18, $ m)

Source: Company filing

During the year under consideration, the group’s revenue recorded a growth 14.1% and stood at $427.5 m against $374.5m recorded in the year-ago period. Out of which its cloud and connectivity segment’s revenue was at $34.1m and recorded a growth of 23.1% from $27.7m recorded in the FY17.

Revenue from hardware modules recorded double-digit growth, driven by solid growth in the America and revenue from this segment stood at $192.4m against the $160.2m reported in the FY17. And now the group is well placed to enhance their revenue in America at a higher rate, compared with the other market.

The IoT business which reported disappointing growth in the previous financial year, this time has reported a growth of 23.1% driven by an increase in cloud and connectivity revenues. The IoT business experienced another year of fast growth in EMEA, which was partly offset by lacklustre growth in the US market. However, the US market showed recovery from the last year but still struggling from a steep decline in the average per-user revenue, which was traditionally higher than in EMEA. Also, the segment performed below the forecasted growth on account of lack of acceleration of certain projects, which made them more selective in engaging for small projects or companies.

However, group’s IoT services segment has grown in recent years, but its operational contribution in the group’s total revenue is still less than 10%, however, it is focusing more and more on IoT services as one of the future growth driver for the company.

Overall revenue from America's geography surged from $160.2m in FY17 to $192.4m in FY18, and the reported growth was marginally above the consensus expectations. The group is in a good position to enhance revenue growth at a faster pace as compared to the other markets. Revenue from EMEA geography expanded to $159.6m from $147.4m However, the group in the EMEA geography continued to be dented by cellular technology stagnation, and the uncertainty over the timing of MNOs moving to new technologies continued to be an essential factor and now the industry assumes that low LTE that started in the year 2018 is expected to ramp up in 2019. The group's portfolio in EMEA segment comprises of 2G and 3G network and offer a full set of products facilitating the varied LTE technologies.

Revenue from APAC increased to $75.5m from $66.9m recorded in the year-ago period, and the segment is back to growth after reporting a decline in the financial year 2018. However, it was marginally below our expectations on account of lower than the forecasted deployment of a significant utility project.

During the period under consideration, group’s adjusted EBITDA improved to $30.1m from $18.1m recorded in the year-ago period and loss before tax narrowed to $39.8m from $56.8m recorded in the previous financial year and adjusted loss before tax stood at $4.1m from $17.8m reported in 2017.

Loss per share narrowed by approximately 33.4% and stood at 27.9p from a loss of 41.9p recorded in the year-ago period. However, cash loss substantially reduced to $3.6m from the loss of $27.0m and the group reported a positive cash profit in the H2 FY18.

Stock Performance – 1 Yr.

Daily Price Chart (as on July 23, 2019), before the market close. (Source: Thomson Reuters)

At the time of writing (at 08:46 AM GMT, before the market close), shares of the TCM were quoting at GBX 162.2 and declined approximately 1.69% against the previous day closing price. The outstanding market capitalisation of the company stood at £217.29m, which ranks it among the small-cap companies listed on the London Stock Exchange.

52w High/Low range

In the past one year, shares of TCM have registered a 52w high price of GBX 192.61 and a 52w low price of GBX 112.0 and at the current trading level, its shares were quoting approximately 44.82% above the 52w low price level.

Price Performance (%)

Shares of TCM have delivered a price return of 4.30% in last one year, and on a year-to-date basis the stock is up by 27.02%, however, in the past 3-months the stock was down by 4.62% respectively. In the past one year, the stock has ended 122 times up and 125 times down and remained unchanged for 6 times against their previous closing level.

Volume Standpoint

From the volume standpoint, the 5-day average daily volume traded in the stock was approximately 27.7% above the 30-days average daily volume traded at the London Stock Exchange. Today’s volume in the stock stood at 22,131.

Simple Moving Average (SMA)

From the SMA standpoint, at the current trading level, shares were quoting below its 30-day and 60-day SMA prices, which indicated a short-term downtrend in the stock price. However, the share is trading approximately 9.59% above the 200-day SMA.

The bottom line is that the stock has recorded decent trading update in the first half of the 2019 and post disposal of its automotive business, the group appears to be well placed to perform better in the second half of 2019. Also, the above-mentioned technical indicators point that the stock is hovering in a neutral zone, while the market is eying the interim results due in September 2019.

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