If 2010 was the year of the smartphone, then 2011 will be the year of the tablet. Following the incredible success of the iPhone and iPad, a glut of copy-cat products are being launched shortly. No wonder that, with so many data-hungry gadgets coming on stream, mobile operators such as AT&T and O2 are scrambling to increase their networks’ data capacity.
This is sweet music for the likes of Alcatel-Lucent, one of the world’s leading mobile-infrastructure providers. At its full-year results last month the shares jumped 22% after CEO Ben Verwaayen said that “every single one of our wireless technologies is growing. GSM is up 9%, CDMA 19%, and wideband CDMA 40%, especially in Asia.”
Another stock that should benefit is Israeli tiddler BATM. It specialises in the niche broadband routers and switches that help fixed and wireless operators to reduce their running costs, increase bandwidth and deliver innovative web services. These products also give service providers the ability cheaply to migrate their over-loaded networks to 4G without having to replace core kit. That’s a huge plus when capital-expenditure budgets are tight. BATM also owns a thriving medical distribution (35% of sales), diagnostics and sterilisation business. This has developed from its software and control algorithms, originally developed for the telecoms sector.
Taking these two divisions together, the board is forecasting 2010 turnover and underlying operating profit of $119m and $7.3m respectively, along with closing net funds of about $47m. Personally, I would value the company on a 1.5 times sales multiple. After adjusting for the cash pile, that delivers an intrinsic value of about 35p per share.
Gamble of the week: BATM Advanced Communications (LSE: BVC)
There are a couple of possible snags. For one, BATM is a small company operating in a dynamic industry against heavyweight competitors. Indeed, it was rocked in the first half of 2010 when one of its largest customers (rumoured to be Nokia Siemens) stopped ordering. There are also the usual foreign exchange, geopolitical and with-holding tax issues associated with Israeli companies.
That said, with several blue-chip customers, first-rate proprietary products and potential to benefit from soaring mobile infrastructure spending, the upside is good. Preliminary results are due out on Wednesday 9 March. I believe the board will provide improved guidance for 2011, which could surprise on the upside. BATM appears to be a takeover candidate too.
Recommendation: SPECULATIVE BUY at 25p (market cap £100m)