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Telit Communications growth to outpace sector, says Northland

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Northland Capital Partners upheld its bullish forecasts for Telit Communications (LON:TCM) today, retaining the view that the company will outperform the growing telecom market in the next two years.

Even though the share price has risen sharply over the past six months, rising from 70 pence at the start of the year to the current 91 pence, Northland sees Telit as a good buying opportunity.

The AIM quoted Telit designs and manufactures machine to machine (M2M) modules that allow devices to talk to each other in an ‘internet-of-things’.

Today’s research report reflected Telit’s acquisition of Motorola’s M2M business in March this year for US$23 million.

Prior to the Motorola purchase, Telit hinted it was on a lookout for value-enhancing acquisitions, noting the ongoing consolidation in the M2M sector.

The broker said that the deal further cemented Telit’s position as the world’s third largest provider of M2M modules.

Northland analyst David Johnson expects the “becalmed” division to slow Motorola’s growth rate in the near-term. However, the business should stabilize in 2012, contributing revenues of US$46 million for the year, and return to growth, achieving a 5 percent increase in revenues in the following year, said Johnson.

Northland forecasts a slowdown in the growth rate of Telit’s core business (excluding the Motorola division) to 17.5 percent in 2012 and 2013.

This, however, would be ahead of Beecham Research’s forecasts for growth in the market of 14.3 percent and 1-.3 percent for 2012 and 2013 respectively.

For this year, Northland still projects a 35 percent jump in Telit’s full year revenues to US$164.5 million. This estimate excludes the contribution from the Motorola division, whose sales are expected to reach US$34.5 million this year.

Northland left its target price of 125 pence per share that it set last November unchanged. This target represents a premium of 37 percent to yesterday’s closing price of 90.5 pence.

Shares in Telit climbed 1 pence (1.1 percent) to 91.5 pence this morning, giving it a market cap of £93.1 million.

Quick facts: Telit Communications PLC

Price: 128 GBX

AIM:TCM
Market: AIM
Market Cap: £169.84 m
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