Norcon is an international project management and outsourcing services business operating in the telecommunications sector. The company listed on Aim in July at 69p. Founded in 1957 and with headquarters in Cyprus, Norcon currently employs 630 staff – mainly as consultants. Eighty-three percent of the company’s revenues are derived from Saudi Arabia, whose economy is currently being fuelled by plentiful petro-dollars and a need to expand its fixed-line and wireless infrastructure.
Norcon (Aim:NCON)
Norcon’s largest client and one of its longest-standing customers is the government-controlled Saudi Telecom Company (STC). In October 2007, the firm resigned its two-year master service agreement, thus securing good earnings visibility over the next 12 months. As an indication of its buoyancy, consultant utilisation levels are running at nearly 95%.
That said, the board recognises the dangers of the group’s exposure to a single account and is actively diversifying its presence into other territories and business lines, especially in the Middle East and Southeast Asia, and across the IT and defense sectors.
With regard to the figures, house broker Finncap is forecasting 2008 sales and underlying EPS of $66.2m and 18.2 cents respectively, rising to $76.2m and 20.3 cents in 2009, while also paying a prospective 4% dividend yield. As such, the shares trade on frugal p/e ratios of 7.5 and 6.7 for the next two years, while the company possesses a solid balance sheet with net debt of only $2m, even after deducting $5m of employee pension liabilities. Second-half cash flow is expected to be a healthy $3.9m.
However, along with its reliance on STC, Norcon is exposed to rising inflation, geo-political risk and foreign exchange fluctuations, since most of the revenues are denominated in dollar-pegged currencies. Also, the shares are thinly traded, with only a 5.5% float, so if you wish to buy some stock then I’d advise biding your time and steadily drip feeding any purchases over an extended period. All the same, this telecoms services minnow is a cheap, rapidly-expanding stock for the more adventurous investor.
Recommendation: speculative BUY at 74.5p (market cap £31m)
• Paul Hill also writes a weekly share-tipping newsletter, Precision Guided Investments.