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Cash-rich Vislink could double

Vislink is a leader in its field, growing fast and management is confident of hitting aggressive targets, but the share price has yet to catch up
July 18, 2013

After struggling through the recession and several years of restructuring, Vislink’s (VLK) products - wireless cameras, lightweight satellite terminals and surveillance equipment - are selling well and generating big profits again. It also boasts a hefty cash pile that account for over a fifth of the current market cap and ambitious targets to boost underlying operating profits by over 150 per cent by 2014. A to that the attraction of the shares' low rating and a tasty dividend more than twice covered by earnings, and it's no wonder directors have been buying shares. We think others should follow suit.

IC TIP: Buy at 32p
Tip style
Speculative
Risk rating
High
Timescale
Long Term
Bull points
  • Director share buying
  • New products selling well
  • On track to hit ambitious targets
  • Shares trade at discount to sector
Bear points
  • Lacks sales visibility
  • Acquisitive growth is risky

Vislink’s wireless cameras and compact encoder systems are used extensively in sporting events such as Formula One and Premier League football. In fact, it’s the market leader with about a 20 per cent share and management reckons about 70 per cent of all outside broadcast video is delivered by Vislink products. A reputation for technological superiority means the company is more resilient to pricing pressure, too.

Evidence that the turnaround had worked was provided in March, with a first full-year profit since 2008 driven by revenue growth and cost cutting. Buying Gigawave in 2011 helped, too. True, the order book shrunk after management stripped out delayed US government contracts, and business here remains prone to lumpiness. Order intake is strong, however, ending the first quarter at a steady £13.3m against tough comparatives. And as Vislink only books orders with a clear payment plan, there’s likely more to come.

Regulatory changes and Vislink’s own technological innovation are working in its favour. Few global broadcasters have so far switched from standard definition (SD) to high definition (HD), and less than a half of global markets have. Australia is the big opportunity over the next year or two, and others will follow.

VISLINK (VLK)

ORD PRICE:32pMARKET VALUE:£36.4m
TOUCH:31.5-32.5p12-MONTH HIGH:35pLOW: 24p
FWD DIVIDEND YIELD:3.9%FWD PE RATIO:9.1
NET ASSET VALUE:42p*NET CASH:£8.1m

Year to 31 DecTurnover (£m)Pre-tax profit (£m)**Earnings per share (p)**Dividend per share (p)
201043.1-8.40-5.601.25
201150.3-0.20-0.201.25
201257.23.102.501.25
2013***61.24.403.001.25
2014***65.55.103.501.25
% change+7+16+17-

Normal market size:5,000

Matched bargain trading

Beta: 0.8

*Includes intangible assets of £29m, or 25p per share

**Underlying EPS and PBT

***Edison Research estimates

Currently, Vislink’s broadcast business generates 82 per cent of sales, but its video surveillance division is growing fast, supplying police forces and military both here and in the US. First orders for its new lightweight satellite terminal MSAT doubled UK surveillance revenue to £3.4m last year, and Special Forces elsewhere are keen.

Vislink remains on track to hit ambitious targets for annualised revenue of £80m and 10 per cent operating margin by the end of 2014, generating an adjusted operating profit of £8m - in 2012 it was £57.2m and £3.1m respectively. Analysts Edison Research forecast significant organic growth over the next few years (see table), with acquisitions expected to bridge the £15m revenue and £3m profit gap between this and the growth target.

Management is clearly confident. Executive chairman John Hawkins and finance director Ian Davies have just spent more than £54,000 on shares, which suggests to us there are no nasties lurking in Vislink’s half-year results out at the end of August. Even if things don’t quite go to plan, there’s strong technical support at about 25p, which mitigates some of the risk.