NetComm designs wireless M2M devices that provide real-time, always-on oversight on the condition of remote assets, while giving businesses the power to control those assets from any location in the world.
Back in 2011, when it was a consumer-based technology company, mainly developing broadband products such as 3G routers, NetComm Wireless Limited (NTC) made an important decision. The company decided to move away from the consumer market and focus mainly on devices and solutions for the machine-to-machine (M2M) market.
M2M is a major driver of the ‘Internet of Things,’ which consists mainly of machines talking to each other. It’s considered another technology revolution, with microprocessors in machines swapping and processing information in real time – effectively monitoring each other – and computer-connected humans observing, analysing and acting upon the resulting ‘big data’ explosion.
It’s a hugely expanding global industry, and NetComm Wireless – which is capitalised at just $83 million – is right at the heart of it, making devices used to connect things like smart meters, medical equipment, vending machines, security cameras, elevators and environmental monitoring systems.
NTC designs wireless M2M devices that provide real-time, always-on oversight on the condition of remote assets, while giving businesses the power to control those assets from any location in the world. The company provides 3G, 4G and rural broadband new generation fixed-wireless devices that underpin the increasingly connected world: companies everywhere are seizing the opportunity to improve efficiency, increase revenue and reduce operational costs with remote access to a wealth of information.
At its 2014 annual general meeting, NetComm said there were about 8 billion devices connected to the internet – but that number was expected to grow to 50 billion by 2020.
The applications of NetComm’s wireless M2M products could really be anywhere that any data is gathered by sensors and micro-processors, but some of the key markets include energy, health care, retail, manufacturing, security, traffic systems, railway, agriculture and marine.
In the 2012-13 financial year, about 20% of NetComm’s revenue came from M2M devices. In the last financial year, that figure was more than 50%.
The surge in M2M sales helped push NetComm back into the black, after a loss in 2012-13. The company made a net profit of $1 million in FY14, compared to a half-million dollar loss the previous year.
NetComm has M2M partnerships now in North America, Europe, the Middle East, Japan and New Zealand, as well as Australia, and has significant strategic agreements in place with a number of global players. In Australia, it works with Ericsson to provide electricity customers with advanced smart metering solutions, while at the same time allowing SP Ausnet to significantly reduce costs while lowering the CO2 produced by electricity generators.
In conjunction with Etihad Etisalat, NetComm helps to manage a network of traffic lights in the UAE under extremely harsh conditions. In Qatar it works with Vodafone Qatar on a wide range of smart city initiatives: everything from vending and dialysis machines to buildings and commercial infrastructure will be managed over wireless networks.
NetComm is enabling large-scale M2M deployments on remote North American mobile networks, trialling remote energy management systems with leading Japanese system integrators and delivering M2M capabilities to a range of industries across Europe and globally. These applications use NTC’s wireless technology at their core to deliver the connectivity and device management services. The company’s partners include Kanematsu Communications of Japan, Alcatel Lucent, Verizon Wireless, SingTel, Vodafone Global Enterprise and Tele2 and major US re-sellers.
NetComm’s M2M technology is open-source: it is software-agnostic, to give customers the flexibility to alter and upgrade their own M2M applications without limitation. This is a major selling point for NTC: it is determined to level the playing field for small to medium-sized business, allowing them to reduce costs and increase efficiencies, while avoid expensive proprietary licensing and development restrictions if they use just one software provider.
Another major market that is emerging for NetComm Wireless is rural broadband. NetComm collaborates with Ericsson on the fixed wireless component of Australia’s National Broadband Network (NBN), and this work is attracting significant global interest, particularly as broadband coverage and speed in rural and remote areas becomes a priority for governments in the US, Canada, Europe and the Middle East. NetComm says the NBN’s successful deployment of its fixed wireless devices in Australia can be transferred to the international arena, presenting an exciting step forward for the company.
Broking firm Moelis sees the NBN contract as “proof-of-concept for the roll-out of rural fixed wireless globally.” The broker quotes Boston Consulting figures estimating the global rural broadband opportunity at US$80 billion, with the top 20 countries representing US$50 billion. 22% of developed-world populations, and 54% of under-developed, live in rural areas.
In particular, Moelis believes the US market could be a huge expansion opportunity for NetComm: US rural areas with no access to broadband represent a US$2 billion opportunity alone. NetComm is already in talks with potential US telco partners.
From the time of its loss in FY13, NetCommWireless has barely looked back, although a runaway share price in 2014 – from 21.5 cents in November 2013 to 77.5 cents in June 2014 – was pulled back to 46 cents in January this year. Earnings-wise, a loss of 0.18 cents a share in FY13 has steadily improved, to earnings per share (EPS) of 0.51 cents at the December 2013 interim, 0.79 cents at FY14 full-year, and 0.95 cents at the December 2014 interim.
For the December 2014 half-year, NTC lifted revenue marginally, from $30.47 million to $30.52 million, but showed a more emphatic improvement in EBITDA (earnings before Interest, tax, depreciation and amortization, which rose 16.3% to $2.29 million, and net profit, which was up 124.5% to $363,003.
Analysts’ consensus EPS forecasts are for 1.1 cents a share at the June 2015 full-year, rising to 4.4 cents a share at June 2016. By then, return on assets (ROA) is predicted to rise to 15.9%, from 2.2% at June 2014, and return on equity (ROE) to surge to 22.3%, from 3.7% at June 2014 (both ROA and ROE were negative in FY13). However, analysts don’t expect a dividend this year or in FY16.
On price/earnings (P/E) grounds, NTC, at 64 cents, is trading on a meaningless historical P/E (FY14) of 81 times earnings, and the prospective FY15 P/E of 58 times earnings is not much better: but if we can take the FY16 forecasts as indicating that the company’s high potential and actual profit generation might start to approach some balance, the prospective FY16 P/E of 14.5 times earnings starts to make more sense – and to look attractive. The analysts’ consensus price target, at 80 cents, implies 20% upside from here. But if NetComm Wireless can continue its progress in the rapidly expanding global M2M market – and most importantly, turn its global partnership agreements into meaningful revenue – and capitalise on the headstart its NBN work has given it in the rural broadband market, there could be much more potential upside than that.
