The global economy is in turmoil and it doesn’t look set to end anytime soon. Yet markets are now pricing in much of this bad news. I believe now is a good time to drip-feed cash into certain equities.
Anite (LSE:AIE), rated a BUY by Canaccord Adams
Take Anite, which provides IT software and testing services for the mobile (62% of revenues) and travel industries. Its wireless unit is the world’s number-two player behind Japan’s Anritsu, providing specialist handset and network software that allows manufacturers (such as Nokia), chipset vendors (such as Texas Instruments) and network operators to test products and services. The travel unit provides reservation and administration systems for tour operators, budget airlines and ferry operators – more than five million people a year book their holidays using its systems. Customers can either license the software and run the systems themselves, or buy a complete package managed by Anite from one of its data centres. Following the £54m sale of its public-sector interests last summer to Northgate Information Solutions, the group now has about £25m of net cash (8.5p a share). That should enable it to survive near-term headwinds and emerge in a position to benefit when sunnier climes return.
So why has the stock fallen 50% in the past 12 months? City investors are fretting that it will be hard hit by the dire state of the global economy, so they’re selling the shares now and asking questions later. This smacks of ‘buy high and sell low’ syndrome. Anite clearly has enough funds, and should do well when so-called fourth-generation (4G) mobile telephony takes off in early 2010, accelerating the introduction of new devices. That’s because the firm gains from the launch of new models, rather than the number of handsets sold. In other words, it makes money when new technology is launched and has to bide its time during a pause between standards.
Sure, there’s been some mixed news flow lately from its hardware partner, Agilent, along with Vodafone, Deutsche Telecom and France Telecom, which all decided temporarily to delay 4G roll-outs. But it’s still full steam ahead for large US groups such as AT&T and Verizon, who are trying to catch up with rival Sprint’s WiMax network.
Analysts expect sales and underlying earnings per share (EPS) of £93m and 3.9p respectively for the year ending April 2009, with 2010 coming in at £88m and 4.1p. That puts the shares on paltry p/e ratios of 7.4 and 7.0, while also paying a 4% dividend yield. A third of the business comes from recurring contracts, while 68% of revenues come from outside Britain, which should help as the pound struggles. Despite the crippling destocking of the past five months, the firm reported recently that it’s on track to hit its targets.
Recommendation: BUY at 29p
• Paul Hill also writes a weekly share-tipping newsletter, Precision Guided Investments.