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Telit earnings wobble

Revenues wavered in the six months to June
Telit earnings wobble

Telit Communications’ (TCM) top-line slipped by almost a tenth in the first half, as customer demand slowed following the outbreak of coronavirus. Gross margin however nudged up by 3.2 per cent, as its higher margin services accounted for an increasing share of the group’s sales. 

IC TIP: Sell at 154p

Its business in the Asia Pacific region was hit the hardest, where revenues dropped by a quarter to $28.8m. Management flagged that the decline was mainly down to a virus-induced slowdown in the deployment of a large project, which it expects to recover next year. 

Telit’s supply chain faced significant disruption earlier in the year, being largely based in China - with a small operation in Brazil and a site in Taiwan that was mainly for automotive products, says finance director and president Yariv Dafna.  According to Mr Dafna, the group was “somehow only with one manufacturing site for all [its] industrial products.”

Small wonder that the company has contracted a new production facility in Vietnam. Telit plans to pick up volumes at the new site, which Mr Dafna hopes will protect against any further supply chain disruption in the case of a second wave of coronavirus cases in Asia. 

Broker finnCap forecasts adjusted pre-tax profits and EPS of $20.1m and 13.4 cents in the full year, rising to $28.1m and 18.6 cents in 2021. 

TELIT COMMUNICATIONS (TCM)  
ORD PRICE:154pMARKET VALUE:£ 204m
TOUCH:153-154p12-MONTH HIGH:177pLOW: 80p
DIVIDEND YIELD:nilPE RATIO:27
NET ASSET VALUE:104ȼ*NET CASH:$56.2m
Half-year to 30 JunTurnover ($m)Pre-tax profit (£m)Earnings per share (ȼ)Dividend per share (ȼ)
201919158.135.0nil
20201679.76.6nil
% change-12-83-81-
Ex-div:na   
Payment:na   
£1=$1.32. *Includes intangible assets of $65m, or 49 cents a share.