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My Personal Analysis of Nera Telecommunications

NeraTel Payment Terminal

If you have ever used credit card to make payment at any shopping malls in Singapore, you probably have used one of the payment terminals supplied by NeraTel.

NeraTel has 3 main business focus areas. They are Telecom, Network Infrastructure and Payment Solutions.

Market Capitalization

As of 24th November 2015, the number of shares stands at 361,897,000. The closing share price is S$0.59.
Market capitalization stood at S$213.52M. NeraTel is a small cap stock.

Dividends

As you can see from the table below, NeraTel pays consistent dividends. However, in year 2011, 2014 and 2015, NeraTel’s dividend payout ratio is near to 100%. Is this sustainable?

Year 2010 2011 2012 2013 2014 3Q2015
Total dividend (cents)  3  4  4  6  4  2.5
Earnings per share (cents)  3.02  3.73  5.36  6.48  4.48  2.49
Dividend payout ratio (%) 99  107  75 93  89  100

Debt

Debt servicing ratio remains extremely low during the period 2010 to 2014. Debt service ratio increases significantly in 2015. As of 3Q2015, the debt service ratio of NeraTel is 4.94% which is still consider healthy.

Year 2010 2011 2012 2013 2014 3Q2015
Net interest expense (SGD dollar in thousands)  7  9  3  0  42  211
Operating income (SGD dollar in thousands)  22,978  26,107  16,135  24,048  9,878  4,273
Debt service ratio (%)  0.03  0.03  0.02 0 0.43  4.94

Investment Moats

NeraTel’s payment solutions business segment is growing. NeraTel is now the largest payment terminal provider in Thailand and also have a large, sizable presence with major clients in Indonesia.

NeraTel either lease or sell point-of-sale terminals to clients. Either way, NeraTel charges recurring maintenance fees and percentage fees for every transaction made.

Investment Strategy

NeraTel makes up 6% of my portfolio. It is a decent dividend yielding stock. With recent disappointing results, the stock price have dropped significantly from above 70 cents to current 59 cents. Due to the increasing debt and lack of catalyst, I shall not be adding more positions in the short term. It doesn’t make sense the company is having more than 100% dividend payout ratio and its debt is increasing by leap and bounds.

There is also no news from NeraTel venture into Myanmar. All I can see in every quarterly NeraTel’s news release is the increasing administration cost from Myanmar office.

Related News

7 QUICK THINGS I LEARNED FROM NERATEL’S AGM 2015 (BT Invest, Victor Chng, 8th June 2015)

Neratel clinches $10.6m card payment contract (Singapore Business Review, 10th July 2015)

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