It's worth noting that the poor sales execution in the second half of last year and which led to the warning had nothing to do with last summer's earnings accretive acquisition of California-based Entone, a pioneer in IPTV and home video distribution ('Primed for major re-ratings', 22 July 2015). That was a transformational deal for the small-cap company as it broadened Amino's product offering and market reach across IPTV, hybrid broadcast and a range of connected home solutions. It also represented a close fit with Amino's acquisition of cloud-TV platform provider Booxmedia in May 2015.
The management changes subsequently put in place, and specifically the appointment of Steve McKay to head up a new integrated sales operation across the Amino and Entone businesses, were a sound move. He had previously been responsible for Entone's international expansion and successfully secured a number of Tier 2 customers, including Cincinnati Bell, in his former role as chief executive of Entone. I also note that finance director Julia Hubbard departed in mid-February.
The point being that the upside from those two acquisitions is simply not in the price assuming, of course, Amino's sales operation is back on track, something that's required to restore investor confidence. That takes time, hence the six-month share price consolidation, but the signs are good. For instance, the company announced yesterday that Vodafone Netherlands is extending its collaboration with Amino and systems integration partner, Divitel, for the continued rollout of enhanced IPTV devices for Vodafone's fibre and DSL-based TV services across the country. The contract is focused on the ongoing supply, fulfilment and support of Amino TV devices to deliver a range of advanced television services, including pause live TV (PLTV), DVR, restart TV and an extensive video on demand library from several broadcasters. And this is not an isolated award as Booxmedia won major contracts with Belgian broadcaster RTL and Dutch utilities company DELTA in the second half of last year.
So, although analysts Andrew Darley and brokerage finnCap and Oliver Knott and N+1 Singer have held forecasts for the current financial year to end-November 2016, which imply EPS rising by over 10 per cent to between 9.4p and 9.6p, the Vodafone contract win is clearly positive. It also reassuringly offers evidence of Amino's strong market position that those two recent acquisitions have brought. Moreover, with the company ending its last financial year in a better-than-expected net cash position of £2.1m, and cash generation strong, there is every reason to believe that the board will maintain its progressive dividend policy and hike the payout per share from 5.5p to 6.1p, as analysts predict in the current year.
Significantly undervalued
On this basis, the shares are rated on little over 11 times forecast earnings, and offer a 5.5 per cent prospective dividend yield. The equity is modestly valued on 1.7 times book value, too, hardly an exacting rating for a company capable of generating a post-tax return on equity of 14.5 per cent in the current financial year and 10 per cent-plus annual earnings growth over the next three financial years.
Chart watchers will also note that during the lengthy consolidation period, Amino's share price has attempted and failed to close below the key 107p support level three times. Furthermore, with the 14-day relative strength indicator on the floor - the reading is only 20 - and the latest sell-off failing yet again, this looks from my lens like a classic case of sellers' exhaustion. A move above the 120p level that has capped this trading range would be very bullish, indeed.
So, although Amino's shares are down on my last buy advice ('Amino has the ammunition', 16 January 2016), albeit the price is still well ahead of the 83p level at which I first advised buying ('Set up for a buying opportunity', 10 June 2013), I feel that the odds favour a profitable outcome and continue to rate them a buy on a bid-offer spread of 109p to 111p with fair value around 155p. Buy.
