Telit ready to hit acquisition trail

Technology group Telit Communications (LON:TCP) today delivered a better than expected set of interim results and said it is ready to hit the acquisition trail in the fast consolidating machine to machine (M2M) market.

"There are a lot of M&A opportunities we would like to address," the company’s chief financial officer Yariv Dafna told Proactive Investors.

He remained tight lipped on the identity of potential bid targets but admitted the company might need to raise money or issue shares to do a deal.

The M2M market has undergone significant change recently.

Nasdaq-listed Sierra Wireless last year bought French rival Wavecom while earlier this year Gemalto, also of France, took over Germany’s Cinterion.

Speculation currently centres on the fate of the M2M operations of two giants of the mobile communications arena – Motorola and Sagem.

Both are losing market share in this specialist arena, and industry analysts say the pair are looking to quit M2M.

Motorola’s M2M revenues are estimated to be in the order of US$40 million while Sagem’s are said to be around half that figure.

It is thought that Novatel Wireless, a bidder alongside Telit for Cinterion, is still on the lookout for acquisition opportunities.

All of which makes for an intriguing period of change in the burgeoning wireless machine-to-machine communications.

Put simply M2M enables one machine to talk to another machine via a wireless network. 

Telit is the only pure play M2M company listed in London and one of the market’s big three players.

This morning it unveiled a better-than-expected set of interims, which reflected a recovery in European revenues and an expansion of sales in the Americas and Asia Pacific regions.

Adjusted EBITDA for the six months to June 30 jumped to US$5.4 million from US$800,000 a year earlier.

Revenues grew 61 per cent to US$59.6 million, though the gross profit margin throttled back to 42.2 per cent from 45.8 per cent previously.

Dafna said margins would in future be in the 40-45 per cent range. It is moving its manufacturing operations to China from Italy which should help to offset a fall in average selling prices.

Broker Astaire expects Telit to generate revenues of U$131 million in 2010, representing a 30 per cent increase on previous guidance and year-on-year growth of 47.5 per cent.

The broker raised its EBITDA forecast by 47 per cebt for the full-year with the company now expected to increase earnings by 114 per cent to US$12.5 million.

For 2011, Astaire is forecasting that revenues will grow by around 34 per cent to US$165 million and earnings will rise by almost per cent to US$20.1m.

"The shift of manufacturing to China has helped offset the reduction in average selling prices and boosted capacity to capitalise on the larger market opportunity," said Astaire’s David Johnson.

"With its share of design wins ahead of its current market share, Telit should continue to grow faster than a market forecast 16.7% annual revenue growth over the next five years."

At 1.15pm, the shares were up 2p, or more than 3.5 per cent, at 58p. However since the start of the month Telit has gone up by more than 45 per cent.

Telit has 12.4 per cent of the global M2M market, which is expected to grow to US1.5 billion by 2014 from US$700 million currently.

Applications of M2M will grow as the technology shrinks.

M2M communications has multiple applications. The technology will allow new electricity and gas meters installed in a house to remotely send data back to a utility provider and cars to send information to insurance firms or to the nearest search and rescue team.

In fact, technology exists today to allow your car to talk to your mobile phone, or your fridge to your stove.

And as smaller and cheaper computers are designed to process more data while consuming less power, so the M2M market will continue to expand and the number of applications that will be completed remotely will increase exponentially.