SINGAPORE (Nov 20): Maybank Kim Eng is positive on the growth prospects of Nera Telecommunications (NeraTel), an IT infrastructure provider with a 40-year track record primarily in the Asian and Middle East & North Africa (MENA) markets.
At its last closing price of 37 cents, the stock is trading at 15 and 11 times 2017 and 2018 P/Es based on Bloomberg consensus, which forecast a two-year EPS CAGR of 77% by 2018.
In an unrated report on Monday, analyst Luis Hilado notes that current valuations follows the group’s business restructuring in 2016 when it sold its payments-solutions business, while 9M17 EBITDA and EPS formed 78% and 71% of Bloomberg’s full-year consensus estimates.
However, he also cautions that NeraTel’s low US$0.04 million average daily turnover and lack of a formal dividend policy could pose investment limitations.
Nonetheless, the analyst likes the stock for its growing network infrastructure (NI) orders with the increasing digitalisation of NeraTel clients’ businesses.
This implies that the segment has a higher probability of providing recurring revenue from maintenance contracts, aside from the segment’s volume opportunities and higher margins compared to the wireless infrastructure network (WIN) segment.
See: Nera Telecommunications swings back to profitability; posts 3Q earnings of $2 mil
Based on the increased pace of enterprise digitalisation and wireless-network upgrades and rollouts in Asia and MENA, Hildado thinks developments in these two regions appear to be behind a positive industry upcycle in recent quarters.
“Aside from MENA wireless operators rolling out 4G networks, oncoming competition in Singapore could provide additional demand from existing or new operators. For example, the re-introduction of unlimited wireless-data plans in the market could generate demand for more offloading products and solutions via WiFi,” he adds.
As at 1pm, shares in NeraTel are trading flat at 37 cents.
