NeraTel – An Abandoned Child

Prior to writing this post, I have divested all my NeraTel shares at a loss of 14.2%. This is including of the dividends I have collected. I shall share the reasons why I made the decision to do so.

NeraTel announced its 4Q2016 financial results on 22nd February 2017. After the sale of its payment solution business to Ingenico, NeraTel business is left with the Telecommunication business segment and Network Infrastructure business segment.

In 4Q2016, revenue from the Telecommunication business segment decreased slightly by 4% ($0.8 million) from $19.1 million to $18.3 million. Revenue from the Network Infrastructure business segment improved by 54.0% ($11.0 million) from $20.3 million to $31.3 million.

If we compare FY16 with FY15, revenue increased by 22.3% ($19.9 million) from $134.8 million to $164.9 million. Although revenue has increased, gross profit for FY 2016 declined by 6.6% from $45.2 million to $42.2 million. Why?

NeraTel attributed the operating expenses to

  • the increase in distribution and selling expenses due to higher payroll related costs and provision made for doubtful debts.
  • increase in administrative expenses by 166.4% ($3.4 million) due to the booking of the former CEO’s remuneration for the remaining service period with the company.

Why Did I Sell NeraTel?

  • The above two points have clearly indicate that the CEO has no interest at heart for investors and the company. He sold the payment solution business and resigned. The remuneration also costed the company a bomb. Future of NeraTel is unknown.
  • The company is unable to manage his staff costs which erode operating profits. No point selling more and still make a loss right? It shows that the company does not know how to manage its most basic operation expense – staff costs.
  • I bought NeraTel because of its payment solution business. With the sale of its payment solution business, it currently focuses only on Telecommunications and Network Infrastructure. Personally, I feel this business is boring and competitive.
  • NeraTel has declared a dividend of $0.0050. This is a huge 50% drop compared to $0.01 paid in 4Q2015.

Conclusion

There are speculations of NeraTel being privatized. However, with the above considerations, I picked up my guts and decided to divest all my stake in NeraTel to preserve the remaining capital. I will hold on to the cash and invest when the next opportunity stock arises.

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