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Telit bets on turnaround

The technology company is working to turn things around under new leadership
September 5, 2018

Telit Communications (TCM) has undergone a significant overhaul during the past year. After evidence emerged of a previous indictment against former chief executive Oozi Cats in the US, Yosi Fait has stepped into the top job and is determined to put any indiscretions in the past. Mr Fait is confident Telit has made "good progress" in implementing a turnaround plan, which he says is evidenced by double-digit revenue growth, stable gross margins and a reduction in operating expenses.

IC TIP: Sell at 165p

Analysts at FinnCap agree that interim results suggest Telit is mounting a "long-awaited recovery". Adjusted cash profits rose to $12.5m (£9.7m), up from the $3.3m reported during the second half of last year, while free cash flow of $3.1m compared with an outflow of $50m in 2017. Gross margins fell from 39.2 per cent this time last year to 33.6 per cent, but the $105m sale of the automotive business should help soften the blow.

Still, analysts have revised full-year pre-tax profits and EPS forecasts down by 45 per cent and 39 per cent, respectively, due to higher depreciation, amortisation and interest charges. They now expect pre-tax profits of $4.8m during 2018, giving EPS of 3.7ȼ, compared with a $17.8m pre-tax loss and loss per share of 16.4ȼ in 2017.

TELIT COMMUNICATIONS (TCM)  
ORD PRICE:165pMARKET VALUE:£216m
TOUCH:165-166p12-MONTH HIGH:202pLOW: 138p
DIVIDEND YIELD:nilPE RATIO:NA
NET ASSET VALUE:86ȼ*NET DEBT:22%
Half-year to 30 JunTurnover ($m)Pre-tax profit ($m)Earnings per share (ȼ)Dividend per share (ȼ)
2017178-6.7-3.5nil
2018202-12.8-9.1nil
% change+14---
Ex-div:na   
Payment:na   
*Includes $109m of intangible assets, or 83ȼ a share  £1=$1.28