Nera Telecommunications Ltd
Dial in for dividends
NERT.SI | S$0.74
NeraTel is poised to benefit from the increased demand for networking equipment given its regional presence and extensive product offerings. Its attractive dividend yields and net cash pile point to limited share price downside. That said, the market may have priced in all the recent good news on NeraTel. Using a dividend discount model, we estimate that NeraTel could be worth S$0.74 (constant dividends of S$0.04 and cost of equity of 5.4%). We expect DPS of 6 Scts for FY13 and 4 Scts for FY14-15, translating into yields of about 8% and 5.5%, respectively.
Easing strained networks
Sustained penetration of smartphones and tablets will continue to drive demand for wireless telecommunication services in Asia where a 7% CAGR is expected for 2013-15. Wireless network infrastructure solutions providers like NeraTel are likely to benefit as telecom operators will have to raise their capex to enhance the capacity and speed of their strained networks. As at end-1H13, NeraTel secured S$44m in orders for the telecommunication segment, a 13.1% improvement on 1H12.
Recurring POS revenue
As banks do not want to incur additional capex for POS terminals, NeraTel has introduced a sale and lease model. We believe that this will result in more recurring revenue for its POS business segment which contributed 22% of its 1H13 turnover. 40% of the POS revenue is expected to be recurring, higher than the historical rate of 25%.
Strong cash position
Free cash flows are expected to remain strong despite additional capex for POS terminals to be leased by customers. NeraTel remains in a strong net cash position, enabling it to invest in growth opportunities and ensuring future interim and final dividend payouts to shareholders.
Publish date: 24/09/13