Saturday, March 19, 2011

Dividend Watch - Nera Telecommunications

Lately, I have been busy with my work, especially career coaching. Still, I manage to find some free time to sniff through some interesting companies.

Allow me to introduce a company which in my opinion is worth taking a second look for pure dividend handout:

Nera Telecommunications - NeraTel

Nera Telecommunications is a premier solutions provider with the technological expertise to provide proven solutions. They deal in microwave solutions, satellite communication, wireless broadband, broadcasting solutions, optical solutions, IT solutions, retail solutions.

Nera Telecommunication serves the markets of Singapore, Malaysia, Thailand, Indonesia, the Philippines, Vietnam, Brunei, Laos, Cambodia, Myanmar, Taiwan and Korea through its headquarters in Singapore. With communications technology opening gateways to increasing possibilities, NeraTel is ready to provide its clients with exciting solutions from the convergence of telecommunications, information technologies and broadcasting industries

In today's world (The Information Age), corporates and companies need instant flow of communication and get connected to a wider network, such that they are able to access it at their fingertips and centralize their strategies from global HQ to country offices worldwide. This explains why we have Facebook, Webinars, Instant Messaging like MSN, Twitter, Linked-In etc. Nera Telecommunications offers the technological expertise to reach out to them and if proved innovative, they could increase revenue by pitching in to telecommunication operators, government-based organizations (part of the GTU), companies or end retailers.

In terms of industry drivers that Neratel could tap in and maximize opportunities:

(a) The telecommunications operators are ramping up their expenditure dollars on the 3G and 4G network

(b) E-payment solutions and other ad-hoc e-services replace traditional point of sale terminals. Convenience is the keyword! - for Neratel info comm division that handles payment solutions

(c) IP voice technology and other e-commerce platform - moving up the technology space for most global companies to get easily inter-connected

I hope Neratel globalizes like a world spinning across with inter-connected networks:



Prior to this, NeraTel has:

(a) Great track record in dividend payout - understand shareholder interests
(b) Attractive yield of 10% (based on last closing price of 40c and 0.04c declared)
(c) Low debt to equity with strong balance sheet
(d) Strong cash position of about S$40m (FY2010 - current ratio of 1.8x in FY2010)
(e) ROE on the past 5 years remain at 17%, this despite their net earnings margin is a single digit - on average of about 6.5%
(f) Strong order book - S$40 million in order intake for the telco division

The downside is the competitive pressures from other players in the information communication and telecommunication sectors and that the fact that the technology trends move fast. Henceforth, NeraTel management has to be in tune with the trends and able to identify the new segments/markets or build on existing sales relationships with their current clientele. Otherwise, NeraTel is taking on too much smaller scale projects which may impact overall revenue in the future - perhaps this is why their net earnings margin is single digit year-on-year

Also, it has low market liquidity (strange that Mr. Market is not taking notice of NeraTel!) so it is not suitable for Traders.

I hope there will be special dividend announced - their payout is once per year. The last announcement for dividend is 4 cents per share and payable on 12 May 2011, record date is on 28 Apr 2011.

I feel what makes this attractive is the ability to pay out stable dividends over the past years. Their CAPEX is low. NeraTel is most suited for dividends and not capital gains.

This will be my expectation. I will continue monitoring till the valuation remains attractive; if not, average down since we can't catch the bottom always.

For the moment, it will be back to my drawing board, analyzing the numbers, understanding the telecommunication and information communication industry potential in Asia and the world, evaluating NeraTel corporate direction and browsing through the management past records.

6 comments:

  1. Neratel is on my watchlist as well, but I am unsure as to whether they can maintain their revenue base and increase market share. So not sure if we should classify this company as a cash cow (with little growth) or as a company with moderate growth potential. Yield is attractive at current levels, but Mr. Market may be factoring in a drop in dividend which is why yield is not being compressed (I am not sure, though, unless I research more into the Company).

    Oh a minor mistake - you said dividend yield was attractive at 10%, but you mentioned share price is 40c and dividend is 0.04c. It should be 4c instead.

    Cheers!

    ReplyDelete
  2. Awesome article!! 4c is amazing, I'm really glad I stumbled upon your blog!

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    ReplyDelete
  3. Thanks Jimmy but please read through Nera Telecommunications website and their latest quarterly results briefing via SGX:

    http://www.neratel.com.sg/

    Good luck!

    Cheers,
    Ken

    ReplyDelete
  4. With dividend yields relatively low due strong the share price appreciation prior to the GFC, income-thirsty investors were forced to go further up the risk ladder to find agreeable yields — and many paid the price.

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  5. Thanks for informative post. I am pleased sure this post has helped me save many hours of browsing other similar posts just to find what I was looking for. Just I want to say: Thank you!
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