Synchronica shares surge after it wins US$740,000 Middle East contract

Shares in Synchronica (LON:SYNC, CVE:SYN) were up by more than seven per cent at lunchtime after the mobile messaging firm said it had received a US$740,000 expansion order from an existing mobile operator based in the Middle East.

The deal is Synchronica’s third significant order from the Middle East in just seven months.

This order is for additional user licences for Synchronica’s Mobile Gateway system, following an initial US$1.5 million order in December last year.

Northland Capital Partners, Synchronica’s house broker, said that it maintaining its ‘buy’ stance and 53 pence price target for the shares.

Mobile Gateway enables the operator to offer mass-market messaging services, including push e-mail and instant messaging. It is based on industry standards and requires no additional software client to be downloaded to the handset and enables push email for the broadest range of handsets, from high-end smart phones to low-cost, entry-level devices. 

The original agreement was signed just before Christmas with a reseller in the UAE and included an initial volume of perpetual licenses worth US$1,198,000, and US$75,000 of additional professional services. The agreement also included recurring support and maintenance fees of US$215,640 over each 12-month period for the life of the licenses.

Synchronica cited a recent study by Australian market researcher Effective Measure as saying that 71 per cent of Middle Eastern mobile Internet users rank e-mail as their most important online activity, followed by access to social networking services. 

The Middle East and Africa region is forecast to have 53.8 million mobile email users by 2014 and is expected to achieve revenues of US$ 2.5 billion (source: Gartner).

“As argued in our initiation in March, we expect customers signed over the past couple of years or inherited through acquisition to start eating though their initial licence commitments this year, resulting in high margin incremental revenue as mobile messaging services gain traction,” said David Johnson, Northland’s analyst. “This will likely improve revenue visibility.”

Johnson added that Synchronica is also succeeding in selling additional services into its customer base and also securing new customers among mobile mobile network operators (MNOs) and handset manufacturers. “This week will also see the General Meeting to approve the proposed acquisition of the Nokia Operator Branded Messaging (OBM) division and associated US$15 million placing,” he said. “This transforms the business by creating a substantial presence in North America with a number of MNOs plus a large active user base. Synchronica also become a strategic supplier to Nokia. None of this potential or progress is reflected in the current share price and we maintain our ‘buy’ rating and 53 pence price target.”

Last month, Synchronica announced its entry into the North American market with the acquisition of the Nokia OBM business, adding more than six million active end users.

OBM’s customer list includes Tier-1 mobile operators across the US and Canada such as AT&T, Sprint, Verizon, T-Mobile, Bell Mobility, Rogers Wireless and others – all of whose contracts will be assigned to Synchronica.

The cost to Synchronica of acquiring OBM is US$25 million, with US$4 million payable in cash on completion of the acquisition and the balance being payable on a deferred basis. Nokia will also be issued 18.3 million warrants in Synchronica’s shares.

Last week saw another success with the group’s foray into another key market for mobile messaging services, India, announcing a third contract with an Indian device manufacturer. The firm also has deals with two large mobile network operators there. 

By 12:39pm today, Synchronica’s shares had increased 7.1 per cent to reach 17.3 pence each.