How Will Sale of NeraTel Payment Solution Business Impact Me

Sale

We know that NeraTel main two businesses are telecommunications and info-communications. Under info-communications, it is further defined into network infrastructure and payment solutions.

On 20th May 2016, NeraTel announced that it has came into an agreement to sell its payment solution business to Igenico Group for S$88 million. The net proceed from the disposal of NeraTel payment solutions will be paid to shareholders.

My stock portfolio consist of 6% of NeraTel and I am pretty much concern about how the sale of its payment solution business will impact my holdings.

According to the announcement,

  1. NeraTel’s earning per share will fall from 3.7 cents to 2.9 cents after disposal of its payment solution business.
  2. Payment solutions business accounted for approximately 26% NeraTel’s total revenue of S$181.5 million and approximately 21% of its total earnings of S$13.4 million.

My personal analysis

  1. After disposal, NeraTel will be a pure Telecommunications play, focusing on network infrastructure. The entry of 4th Telco may be beneficial to NeraTel if NeraTel is engaged to provide networking services for the 4th Telco. However, this is purely my own speculation.
  2. NeraTel will be less capital intensive. However, it also means the loss of recurring revenue from the lease of Point of Sales (POS) systems.
  3. I expect a special dividend payout from NeraTel after the disposal.

My decision is to wait for further developments as my original purpose of purchasing NeraTel is for recurring dividend income. As payment solution only make up 26% of NeraTel’s total revenue, I am expecting not much of a dividend cut.

NeraTel Cuts Dividend from Two Cents to One Cent

NeraTel Payment Terminal

NeraTel announces its 4Q2015 results on 24th February 2016. Profit after tax for the full year fell 17.4% from $16.2 million to $13.4 million. A final dividend of one cent was declared as compared to two cents a year ago.

NeraTel business comprises of two main segments. They are Telecommunications and Info-communications.

Telecommunications

Compared to FY 2014, turnover for FY 2015 declined 6.7% ($4.1 million) from $61.9 million to $57.8 million. The decrease was due to lower sales in the Middle East and Africa market.

Info-communications

Network Infrastructure

Compared to FY 2014, turnover for FY2015 declined 4.5% ($3.6 million) YOY from $80.6 million to $77.0 million. The decline in turnover for the quarter and FY2015 mainly resulted from lower sales of network equipment to the Service Provider market sector.

Payment Solutions

Compared to FY 2014, turnover for FY2015 increased 17.2% ($6.8 million) YOY from $39.9 million to $46.7 million as a result of higher contribution from terminal sales and leasing.

Dividends

With the final one cents dividend being declared, this brings the total dividend paid for 2015 to 3.5 cents.

Year 2010 2011 2012 2013 2014 2015
Total dividend (cents)  3  4  4  6  4  3.5
Earnings per share (cents)  3.02  3.73  5.36  6.48  4.48  3.7
Dividend payout ratio (%) 99  107  75 93  89  94.6

Again NeraTel’s dividend payout ratio near to 100%. Is this sustainable?