Homepage
PR Newswire
28-04-2015, 09:20 PM
Attended the AGM today. Nothing earth shattering to report. The things that jumped out at me :
1. The company continue to be very focused on growing stable "recurring sales" (basically the payment solutions / service / leasing revenue) which makes sense given that the market will value that earnings stream at a higher multiple.
For 2014, this has now grown to 35% of revenues (versus 31% in 2014), so it is starting to become significant. The downside of this growth is that the leasing business is capex intensive. It also sounds as though margins are lower but the company argues that margins will rise over time as they grow their scale (they now have more than 300,000 payment terminals installed).
2. When asked where growth would come from (given that revenues have been fairly flat over the last few years), the CEO responded that it would mainly be from geographical diversification. He cited some progress in Myanmar but didn't elaborate on Nigeria where they have added a sales office a year or so ago.
3. The company is keen to be seen as a "solutions provider" that is able to solve clients' problems by integrating the best hardware and software in the market (as opposed to pushing a product). The benefits of this strategy is that margins are higher. They argue that, because they are independent and agnostic as to which equipment or software to market, they are able to deal with more clients (eg they work with all three Telcos in Singapore).
4. Their intention to get more involved with cloud based technology was reiterated quite a few times. They also mentioned that the increasing relocation of datacentres to Singapore provides opportunities. Antivirus software was also mentioned a few times.
5. The basic message is that we now want to receive more info faster through multiple devices and Neratel is trying to position itself to be the engineer that can come up with solutions to ensure that the hardware and software required for this is integrated.
6. Wrt the large increase in receivables for 2014, the company ascribes this to a major contract in Malaysia that they decided they had to win for strategic reasons and where the payment terms had to be longer than usual.
7. Wrt "past due but not impaired" receivables, they explained that their standard payment terms are 30 days and hence any receivable longer than that gets classifies as "past due but not impaired". They are not concerned about getting repaid.
8. Although Neratel operates in quite a few countries, their business is the same in all of these countries. This means that they do have economies of scale when it comes to purchasing equipment (ie can get bigger discounts) and this gives them a competitive advantage over smaller players that only operate in one country.
My overall impression is that the company is trying to generate more recurring revenue (which is positive) and has a number of new initiatives (eg improving the Wifi or reception in buildings, cloud related...) to grow revenues but, so far, they are still relying on finding new countries and, unfortunately, so far, this has not successfully grown overall revenues over the past few years. One year, one country is big, the next it is another etc etc. The good news is that, as a portfolio of countries, revenues are stable (and profits as well), the bad news is that we are not really seeing revenues moving to the next stage.
It is a nice, well run company with a good dividend yield (and a long track record of paying 4 cents p.a.) but it is difficult to see where the next catalyst for the share price will come from. My guess is that it will be either through a significant increase in the Service / Leasing revenue which will allow a re-rating of the stock to a higher multiple. In the meantime, enjoy the dividend.
Vested.
1. The company continue to be very focused on growing stable "recurring sales" (basically the payment solutions / service / leasing revenue) which makes sense given that the market will value that earnings stream at a higher multiple.
For 2014, this has now grown to 35% of revenues (versus 31% in 2014), so it is starting to become significant. The downside of this growth is that the leasing business is capex intensive. It also sounds as though margins are lower but the company argues that margins will rise over time as they grow their scale (they now have more than 300,000 payment terminals installed).
2. When asked where growth would come from (given that revenues have been fairly flat over the last few years), the CEO responded that it would mainly be from geographical diversification. He cited some progress in Myanmar but didn't elaborate on Nigeria where they have added a sales office a year or so ago.
3. The company is keen to be seen as a "solutions provider" that is able to solve clients' problems by integrating the best hardware and software in the market (as opposed to pushing a product). The benefits of this strategy is that margins are higher. They argue that, because they are independent and agnostic as to which equipment or software to market, they are able to deal with more clients (eg they work with all three Telcos in Singapore).
4. Their intention to get more involved with cloud based technology was reiterated quite a few times. They also mentioned that the increasing relocation of datacentres to Singapore provides opportunities. Antivirus software was also mentioned a few times.
5. The basic message is that we now want to receive more info faster through multiple devices and Neratel is trying to position itself to be the engineer that can come up with solutions to ensure that the hardware and software required for this is integrated.
6. Wrt the large increase in receivables for 2014, the company ascribes this to a major contract in Malaysia that they decided they had to win for strategic reasons and where the payment terms had to be longer than usual.
7. Wrt "past due but not impaired" receivables, they explained that their standard payment terms are 30 days and hence any receivable longer than that gets classifies as "past due but not impaired". They are not concerned about getting repaid.
8. Although Neratel operates in quite a few countries, their business is the same in all of these countries. This means that they do have economies of scale when it comes to purchasing equipment (ie can get bigger discounts) and this gives them a competitive advantage over smaller players that only operate in one country.
My overall impression is that the company is trying to generate more recurring revenue (which is positive) and has a number of new initiatives (eg improving the Wifi or reception in buildings, cloud related...) to grow revenues but, so far, they are still relying on finding new countries and, unfortunately, so far, this has not successfully grown overall revenues over the past few years. One year, one country is big, the next it is another etc etc. The good news is that, as a portfolio of countries, revenues are stable (and profits as well), the bad news is that we are not really seeing revenues moving to the next stage.
It is a nice, well run company with a good dividend yield (and a long track record of paying 4 cents p.a.) but it is difficult to see where the next catalyst for the share price will come from. My guess is that it will be either through a significant increase in the Service / Leasing revenue which will allow a re-rating of the stock to a higher multiple. In the meantime, enjoy the dividend.
Vested.
