It's therefore refreshing when a company openly declares its profit targets for the year ahead, and pretty aggressive ones at. Bearing this in mind, I have been keeping a close eye on the Aim-traded shares of Vislink (VLK: 43p), a global technology business specialising in the collection and delivery of high quality video and data from the field to the point of usage. Vislink provides solutions to the broadcast market for the collection of live news, sport and entertainment events and to the surveillance market including defence, law enforcement and public safety. Primarily, the company designs and manufactures microwave radio, satellite transmission, cellular and wireless camera systems. Employing over 300 people worldwide, Vislink has offices in the UK, US, UAE and Singapore.
The reason I am interested in the company at this point in time is because the board are aiming to achieve operating profits of £8m on revenues of £80m this calendar year. Analysts at brokerage N+1 Singer are forecasting adjusted operating profit of £6.8m on revenues of £71m, up from £4.3m and £59.9m respectively in 2013. Analysts at Edison Investment Research are more bullish, forecasting operating profit of £7.1m. So even if Vislink falls short of its target the company could still exceed analyst earnings estimates handsomely.
Based on these low ball analyst estimates, full-year EPS could still be as high as 4.6p, well above normalised EPS of 3.2p in 2013. On this basis, Vislink shares are priced at less than 10 times earnings estimates. Moreover, that modest rating will drop even further if the company delivers the extra £1m of profit it’s targeting in the current financial year. Interestingly, when executive chairman John Hawkins was asked about the disparity between broker forecasts and the company’s own guidance at the time of the full-year results in March, he drily noted “They are analysts’ estimates, not ours”. In any case, we will not have long to wait to find out whether the company is going to ‘over deliver’ on analysts current year numbers as Vislink is scheduled to release its half-year results to end June 2014 on Tuesday, 2 September.
I have a strong feeling we will not be disappointed as the trends in the business are reassuringly positive. Guidance is that surveillance sales will grow in the region of 25 per cent this year, having increased by 16 per cent in 2013, buoyed by strong demand in the Middle East. This bumper growth is hardly surprising given that mission-critical situations are dependent on the rapid deployment of highly reliable communication links between teams in the field and is key to maintaining national security and protecting citizens. The company’s customers include US state, local police and fire departments, government agencies involved in homeland security, and private security forces worldwide.
Expanding target markets
Importantly, Vislink has been expanding its addressable market and reducing its dependence on the £230m global broadcast contribution sector where it has a market share of around 20 per cent. By also expanding into surveillance, mobile broadcast and playout automation, analysts at Edison believe the company’s end markets are now worth £680m in total annual revenues.
These new markets have stronger growth prospects too. For instance, the use of 3G, 4G and Wi-Fi networks in outside broadcasts means that the company’s new product offerings enables its customers to feed live streaming videos straight to websites, and far more cost effectively too. This not only increases demand from traditional broadcasters who prefer to use lower cost transmission mobile networks rather than expensive satellite links, but it also means that coverage can be increased too. A good example is the use of mobile telecoms in broadcasting sporting events such as marathons.
The company has also moved into the playout market through the acquisition of Weybridge-based Pebble Beach in March. Founded in 2000, and employing over 60 staff, Pebble Beach is a leading developer and supplier of automation, 'channel in a box' and content management services for TV broadcasters, cable and satellite operators. The business has developed a portfolio of software products to support a wide range of broadcast applications. For example, its automation products are suitable for multichannel playout as well as high pressure live programming environments such as news or sports, while supporting new technologies such as HD, internet protocol TV and interactive television. Clients include TV Globo Brazil, Fox News and Viasat UK.
It’s only reasonable to assume that Pebble Beach will benefit from access to more sales channels through the global network of over 900 broadcasters that Vislink works with as well as its international network of offices. It was a sensibly priced deal too: the net consideration of £9m, mainly in cash, represented only seven times Pebble Beach’s pre-tax profits of £1.3m. And with the benefit of a full 12 month’s contribution, analysts at Edison predict Vislink can lift revenues to £75m in 2015 and boost operating profits to £8.1m. On this basis, EPS ramps up to 5.4p and the forward PE ratio drops to 8.
There is a decent dividend too as analysts predict the full-year payout will be maintained at 1.25p a share, implying a yield of almost 3 per cent. A held payout is supported by sound finances. Following the acquisition of Pebble Beach, analysts at N+1 Singer estimate that Vislink will have net debt of £3.4m at the year-end, implying gearing of only 7 per cent of shareholders funds of £49.6m.
So with Vislink set to release a bumper set of half-year results next week, I see no reason why the shares should be so lowly rated. My conservative six-month target price is 60p, or 11 times 2015 EPS estimates.
Please note that I am now until holiday until Monday, 8 September.
■ Simon Thompson's new book Stock Picking for Profit can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 and is being sold through no other source. It is priced at £14.99, plus £2.75 postage and packaging. Simon has published an article outlining the content: 'Secrets to successful stock-picking'
