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UPDATE - Telit Communications' earnings estimate upgraded

Another record quarter for Telit Communications which even seems to have caught house broker Canaccord Genuity on the hop. The broker has upped its earnings forecast for 2013 by 6% following Telit's latest trading update.
UPDATE - Telit Communications' earnings estimate upgraded

Telit Communications' (LON:TCM) house broker has upped its earnings forecast after another record quarter from the  Machine-to-machine (M2M) wireless technology specialist.

The company revealed that revenue for the final three months of 2013 is likely to be in the region of US$72.5mln – a record quarterly total and up 26.3% on the US$57.4mln on the final quarter of 2012.

For the whole of 2013, revenues are expected to amount to US$243.5mln, a 17.4% increase on 2012’s revenues of US$207.4mln. Telit noted that 2013 revenues are ahead of market expectations of US$240mln and it had achieved double-digit top-line growth for the fourth year in a row.

Telit’s house broker, Canaccord Genuity, responded by upgrading its estimate of underlying earnings for the year just completed by 6% from US24.1mln to US$25.5mln.

Around US$8.5mln of the US$36.1mln year-on-year revenue growth in 2013 came from m2mAIR, Telit’s 'platform as a service' (PaaS) offering, with second half revenue from the platform of US$6.1mln massively outstripping the division’s first half revenues of US$2.4mln.

The company clearly has lots of other avenues of growth, as well, including its recent acquisition of ILS Technology, a provider of an off-the-shelf, cloud platform to connect corporate information technology systems to m2m-connected devices and machines for business-critical use.

“The recent acquisition of ILST provides Telit with access to additional value added services and customers, providing Telit with an even broader footprint in the m2m value chain. We see tremendous synergies between our wireless modules and connectivity offerings and the ILST portfolio provides us with the ability to further strengthen and solidify our presence in the m2m market,” said Oozi Cats, Telit’s chief executive officer.

“The recent signing of an agreement to acquire NXP's ATOP (Automotive Telematics On-board unit Platform) business will provide Telit with additional expertise in automotive platforms, which are becoming increasingly dependent on advanced software engineering, as well as a significant customer base which has already designed systems with ATOP,” Cats continued.

ATOP is a solution for vehicle manufacturers that enables them to implement telematics services like eCall, the European initiative to bring rapid assistance to motorists involved in a collision anywhere in the European Union, on a single compact and cost efficient package.

“The multi-service capable ATOP platform provides support for a range of features from its single package, including vehicle location & tracking, remote starting and diagnostics as well as business applications such as fleet management. This acquisition also delivers our teams a high level of competence in system security, necessary for protecting not only vehicles but also the increasingly important elements of driver privacy under such applications,” Cats said.

Closing of this acquisition is planned to take place during the first quarter of 2014.

The AIM-listed company ended 2013 with around US$23.6mln in cash, up from US$21.4mln at the end of 2012. Net debt at the end of the year had risen to around US$17.1mln from US$12.7mln a year earlier.

Telit’s house broker, Canaccord Genuity, reckons management is likely to deliver another year of results that are ahead of expectations.

“Management is developing a strong track record of financial performance. The addition of an NXP board member, expected with the acquisition, should further enhance management's credibility,” said analyst Bob Liao.

“We expect continued strong growth as the M2M market gains further momentum. We conservatively forecast 9% non-m2mAIR sales growth in 2014 and we forecast m2mAIR revenues almost triple to US$23.5m and reach 9% of 2014 total sales,” Liao revealed.

The analyst is especially high on the cloud-based platform of ILS Technology, which Telit acquired on 4 September.

“We believe ILS Technology significantly enhances Telit's competitive advantage, allowing the company to offer a unique full suite M2M solution, including devices, connectivity and deployment platform. In addition, we believe ILS Technology is the clear leader in the M2M application security a market, which ABI Research expects to grow at 46% in 2014 and 40% CAGR [compound annualised growth rate] from 2013-18.

The planned acquisition of NXP's ATOP automotive telematics platform also gets the thumbs-up from Liao, who suggests the acquisition significantly would expand Telit's automotive offering and “increase the company's clout and stickiness with customers”.

“Telit would be able to offer a unique, integrated solution that should allow automotive OEMs [original equipment manufacturers] to more easily develop M2M solutions and introduce products to market faster.

“The acquisition would also add a range of automotive customers to Telit's customer base, including tier 1 suppliers to leading OEMs,” the broker said.

Telit shares were up 2.8% at 182p in late morning trade.

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