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Troubled Telit confident about 2018

The technology company endured various problems – financial and managerial – last year
May 1, 2018

It wasn’t exactly Telit Communications’ (TCM) best year. While revenue was flat, the 'internet of things' enabler plunged into the red, albeit as a result of a marked step-up in research and development and restructuring costs. Then there was the untimely departure of former chief executive Oozi Cats, after evidence emerged of an historic indictment against him in the US – a management overhaul quickly ensued.

IC TIP: Sell at 161p

Various factors beset the top line, including North American mobile network operators taking longer to certify Telit’s Category 1 voice-over long-term evolution modules. Sales for the Americas rose by 7.5 per cent to $160m (£117m), but this was well below management’s expectations, while existing projects also faced delays. Meanwhile, the gross margin fell from 40.3 per cent to 35.1 per cent, after a faster-than-expected shift from mature 2G and 3G technologies to lower-margin 4G technology, while two lossmaking acquisitions (GainSpan and Stollmann) from 2016-17 lifted operating costs.

What’s being done to rectify this situation? Telit aims to cut around 10 per cent of annualised cash operating expenses over 18 months. It is also considering proposals for the potential sale of its automotive division, which grew strongly last year. And, having sought waivers of bank covenant breaches, the company now has new, more appropriate covenants in place.

TELIT COMMUNICATIONS (TCM)   
ORD PRICE:161pMARKET VALUE:£210m
TOUCH:160-161p12-MONTH HIGH:379pLOW: 100p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:95ȼ*NET DEBT:24%
Year to 31 DecTurnover ($m)Pre-tax profit ($m)Earnings per share (ȼ)Dividend per share (ȼ)
201324312.010.5nil
201429413.910.6nil
201533315.912.36.0
2016 (restated)37017.913.47.4
2017375-56.8-41.9nil
% change+1-417-413-
Ex-div:na   
Payment:na   
*Includes intangible assets of $110m, or 84ȼ a share. £1 = $1.37