- First-quarter revenue rises 12 per cent to $11.2mn
- Quarterly pre-tax profit up 8 per cent to $0.97mn
- Net cash of $6.5mn after $7mn of costs including final dividend, PSK acquisition and exit from Russia
An Israeli-based technology group is generating strong growth, has a bumper pipeline of tenders, and offers a play on the global food crisis, too.
The war in Ukraine is not only accentuating the impact of the ongoing energy crisis, but has prompted the governor of the Bank of England to warn of "apocalyptic food prices", too. Fertiliser prices have more than trebled in the past year, which will feed into sharply higher shop prices, while at the same time the breadbasket of the world is unable to ship 20mn tonnes of grain in storage due to blockades in the Black Sea. To compound matters, global warming is continuing to impact crop yields.
It’s a positive backdrop for Israeli-based technology group MTI Wireless Edge (MWE:65p), which could yield significant sales of its cutting-edge Mottech's real-time irrigation monitoring, control and reporting software. That’s because it now offers Viridix’s RooTense sensor that monitors crop root activity and implements an irrigation protocol across farms in real time. On average, the technology saves over 30 per cent in water usage for farmers while also improving crop quality and yield.
Mottech is the exclusive distributor in South Africa and Australia, where the business already has hundreds of existing agricultural customers, and will promote the integrated solution in other territories as well including France and China. Given that the savings on water usage are high relative to set-up costs – the sensors cost a few hundred dollars per hectare to install – then Mottech should be able to generate a high-income stream by selling the kit, and create a valuable recurring revenue from annual license sales thereafter.
MTI’s water solutions business accounted for 40 per cent of the group’s $1mn (£0.8mn) operating profit in the first quarter of 2022, so is major profit contributor. Chief executive Moni Borovitz revealed during our results call that MTI has “some big projects in the pipeline”, so expect news on new orders from mid-July onwards.
The other key take for me from the quarterly results was the 88 per cent increase in operating profits to $0.74mn from MTI’s Summit electronics division, which represents 40 international suppliers of radio frequency/microwave components. The division is benefiting from January’s acquisition of a 51 per cent stake for $1.2mn in PSK, an Israeli company which specialises in the development, manufacture and integration of communication systems and advanced monitoring and control systems for the Israeli government defence market.
Strategically, PSK is enabling MTI Summit to step up the value chain by offering not only components, but also turn-key solutions such as fixed and mobile communication, telemetry and signal intelligence systems. Moreover, MTI's strength and size is assisting PSK in boosting its customer base and involvement in the market, while enabling MTI to offer a wider range of higher-value products to customers. In addition, MTI made $0.8mn of loans to PSK to strengthen its balance sheet and enable the company to take advantage of a strengthening market.
True, MTI’s antennae business did post a small quarterly loss as supply chain issues led to slower fulfilment of 5G backhaul orders to support mobile phone operators roll out their 5G networks. However, the sales opportunities are material. Indeed, Borovitz reports further interest from Tier 1 OEM vendors for its new automatic beam steering 5G antenna which adapts to small movements caused by climate conditions to maintain a stable signal. In fact, he expects another four Tier 1 OEM customers to become customers.
MTI’s share price has risen 35 per cent since my last buy call (‘Bargain hunting in the market carnage’, 7 March 2022), and the shares are now rated on a cash-adjusted forward PE ratio of 17 and offer a prospective dividend yield of 2.8 per cent. This is based on Allenby Capital’s forecast of 12 per cent growth in pre-tax profit this year, a sensible prediction. That’s still a modest rating for a well-capitalised group that makes a 13 per cent post-tax return on equity and is addressing three high-growth market segments: climate change, defence, and 5G backhaul. Buy.
■ Simon Thompson's latest book Successful Stock Picking Strategies and his previous book Stock Picking for Profit can be purchased online at www.ypdbooks.com. The books are being sold through no other source and are priced at £16.95 each plus postage and packaging of £4.50 [UK].
Promotion: Subject to stock availability, both books can be purchased for the promotional price of £25 plus £4.75 [UK] postage and packaging.
They include case studies of Simon Thompson’s market beating Bargain Share Portfolio companies outlining the investment characteristics that made them successful investments. Simon also highlights many other investment approaches and stock screens he uses to identify small-cap companies with investment potential. Details of the content can be viewed on www.ypdbooks.com.
