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Last year's $12.5m (£6.3m) purchase of GPS offender tracking technology provider Pro Tech was more than just a bolt-on acquisition for electronic monitoring technology provider Dmatek. Pro Tech brought with it a much needed boost in terms of scale, recognition and clients, and also increased recurring revenues through its leasing model, which Dmatek is now favouring due to its cash-generative nature. Leasing now accounts for 61 per cent of group revenue (28 per cent in 2006) and this is set to rise even further.
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Law enforcement monitoring continued to drive growth with revenue up by almost 70 per cent to $37.9m, representing 86 per cent of the total. The US remains the key market, and contributed more than half of Dmatek's sales. But this doesn't mean other markets have not been penetrated. Products are being tested in Russia, repeat purchases have been made in Sweden, and Spain has extended contracts worth more than $11m for 2008-09.
The elderly care division is the smaller part of the business, but chief executive Yoav Reisman says that lower margins here will eventually be justified by higher volumes as the business grows. Last year, this business reported 48 per cent revenue growth.
Broker KBC Peel Hunt expect 2008 adjusted EPS at 20.8¢ (20¢ in 2007), rising to 21.8¢ in 2009.
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DMATEK (DTK) |
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|---|---|---|---|---|
| ORD PRICE: | 112p | MARKET VALUE: | £24m | |
| TOUCH: | 110-114p | 12-MONTH HIGH: | 178p | LOW: 100.5p |
| DIVIDEND YIELD: | NIL | PE RATIO: | 11 | |
| NET ASSET VALUE: | 162¢ | NET CASH: | $9.7m | |
| Year to 31 Dec | Turnover (£$) | Pre-tax profit (£$) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2005 | 22.2 | 2.68 | 10 | nil |
| 2006 | 26.8 | 4.96 | 19 | nil |
| 2007 | 44.3 | 5.19 | 20 | nil |
| % change | +65 | +5 | +5 | - |
£1 = $1.99 |
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Dmatek's law enforcement arm will benefit from clearer earnings visibility by shifting to leasing, and the elderly care segment is well poised for sound long-term growth. So, trading on 11 times 2008 earnings, the shares offer cheap entry into what is now a market leader. Buy.
Last IC View: Fairly priced, 168p, 16 Mar 2007
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-IC-1.5.4a-prod - 31/10/2008 13:11:34 - carlos.princz
