I try to take a thematic view when stock picking as well as scouring the market for under-priced investment opportunities that fit my value focused approach.
When the two are aligned it can lead to dramatic re-ratings, Israeli-based technology group MTI Wireless Edge (MWE:76p) being a case in point. The share price has surged 90 per cent since I initiated coverage (Alpha Report: ‘Tapping into 5G and climate change technologies’, 4 Sep 2020), but still offers 33 per cent upside to my 100p target.
MTI’s impressive interim results highlighted the ongoing structural growth drivers across all three of its divisions: global warming and climate change; increased defence budget spending; and demand for next generation 5G networks. The positive outlook also underpins house broker Allenby Capital’s forecasts that point to annual pre-tax profit rising by a fifth to US$4.9m on 6 per cent higher revenue of US$43.4m. On this basis, expect earnings per share (EPS) of 3.27p and a 10 per cent dividend hike to 2p a share. For 2022, Allenby pencils in EPS of 3.59p and a net cash pile of US$12.2m (10p a share), implying the shares are rated on 18 times cash-adjusted forward earnings, hardly exacting for an income paying technology company.
Structural growth drives MTI Wireless’ sales and profits
- First half operating profit up 14 per cent to US$2.2m on 9 per cent higher revenue of US$21.3m
- Cash flow from operations surges 53 per cent to US$3.1m
- Net cash of US$9.7m increases 28 per cent year on year
As the world combats the effects of global warming, Europe’s scorching summer temperatures highlight why the cutting edge wireless water irrigation systems developed by MTI Wireless Edge (MWE: 76p) are proving so popular.
Chief executive Moni Borovitz flags up high demand from the French wine market where MTI has installed over 1,000 water controllers since launch last year, and expects to install hundreds more in the second half, revenue growth of 35 per cent from 50 per cent owned Australian subsidiary in the past two years, and notable customer wins. These include a Can$300,000 award from a major Canadian city and a US$2.5m contract extension with a leading Israeli municipality. The division accounted for two fifths of MTI’s interim revenue and operating profit and is primed for a strong second half showing.
In the first half, the stand-out performer was MTI’s Summit electronics division which represents 40 international suppliers of radio frequency (RF)/microwave components and sells these products to customers in Israel and Russia. Divisional revenue surged 20 per cent to US$7m, or a third of the group total, and delivered 16 per cent higher operating profit of US$0.91m, buoyed by high levels of government spending on defence and demand for new wireless/RF commercial solutions in Israel. MTI also secured “new orders from significant military customers.” This bodes well for the future.
MTI’s antenna business (11 per cent of operating profit) is starting to gain real traction, with a growing focus on providing 5G backhaul antenna solutions (18 per cent of divisional revenue) to support mobile phone operators as they roll-out higher bandwidth 5G services. This presents a major opportunity for MTI's multi band and flat antennas as network operators increase backhaul connectivity between cell towers to deliver faster services. In addition, MTI has been selected to partner with technology firm Craig Technologies to develop a new range of space antenna for a Florida funded project, an exciting new area for the company, and has just secured an agreement with Ultra Electronics TCS Inc. to develop two types of naval antenna. Buy.
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