Connect to Amino for growth and value

Several trends are working in Amino's favour. For example, the threat of pay-TV services, such as those offered by British Sky Broadcasting (BSY) and online video-streaming website Netflix (US: NFLX), has forced telecoms operators to think outside the box. Many are investing in broadband services, and offering Amino's boxes can help them attract and keep customers. Moreover, consumer demand is surging for internet-delivered TV content.

Those tailwinds should help Amino after a tough period. It slashed its operating costs by more than a quarter last half, it has widened its operating profit margin from 4 per cent to 10 per cent in the past three years and has amassed nearly £20m in cash with no debt. The group has also refined its engineering process to build and ship products faster. The result has been strong profit growth but a slowdown in sales.

That looks set to change as Amino's investment in sales and products starts to pay off. It has broadened its product portfolio to cater to diverse markets, which helped it land a deal for its cheaper A140 and A540 set-top boxes with Caribbean operator Lime TV, a part of Cable & Wireless Communications (CWC). Meanwhile, US-based Interstate Telecommunications is rolling out its pricier Live Advanced Media Platform, which offers multi-room content streaming, catch-up TV and video-on-demand services. Amino continues to drive strong growth in east Europe and Latin America - it signed up an Albanian operator and a group of local 'co-operativa' operators in Argentina this year. And it has developed a home-monitoring and controls solution, Amino Home Reach, that should help it tap into the burgeoning 'Internet of Things'.

The upshot is that Amino is trading ahead of City analysts' full-year profit forecasts, according to a trading statement last month. In a show of confidence, the company has bought back 775,000 shares since then. Its update prompted analysts at broker N+1 Singer to hike their full-year EPS forecasts by 6 per cent. They expect Amino's cash profits to grow 10 per cent this year to £6.6m, then a further 11 per cent in 2014-15.

But Amino's rich prospects aren't reflected in its rating. Strip out cash and its shares trade at nine times forecast earnings - a discount to the average sector rating of 13. Analysts also reckon that the dividend will be 4.4p in the year soon to start, which would generate a 4.5 per cent yield (see table).

Of course, investing in Amino carries risk. True, rejuvenating growth won't be easy, especially after its first-half sales slumped 19 per cent and its gross margin shrunk by 1.3 percentage points to 44.9 per cent. And trading in west Europe remains challenging, with some evidence of market saturation.