I added this stock to the portfolio three months ago after directors forecast a net profit after tax for the current 2008-09 year of $48 million, up from a forecast $10.8 million in the 2007-08 year.
At that time the company’s shares were trading at 9c ahead of a five-to-one consolidation approved a week later. So our purchase price at 9c, resulted in a 45c purchase price after the consolidation.
At that price the shares were on a multiple of just 3.5 times forecast net profit for the current year.
Yet in the past three months the share price has crumbled along with the rest of the market to 25c, at which price the stock is on a multiple of a little more than two times current year forecast earnings. At the company’s annual meeting in Sydney this week, the directors left their earnings guidance unchanged.
Entertainment Media and Telecoms Corp. listed on the Australian Stock Exchange in March, 2007, as a consulting business focusing on mobile phone applications, a market claimed by the company to have global sales of $US13 billion a year with annual growth of 25 percent.
The company then comprised a subsidiary in Malaysia (EM & T Sdn Bhd) and another small one (Sapio AB) in Sweden, which between them delivered a revenue of $7.1 million for the half-year to December 31, 2007, and a maiden net profit of $5.1 million.
Towards the end of 2007, ETC entered into a binding agreement to buy a minimum of 51 percent and up to 100 percent of Malaysian company NexBis Sdn Bhd (Nexbis) for a total of $A60 million.
That was completed in September through placements to raise cash and share issues to vendors. At the time of the initial purchase, ETC predicted that Nexbis could potentially generate $US84 million in net annual revenue to ETC by 2015 from its three main areas of business — Malaysia, Thailand and the United Arab Emirates.
Since then, ETC has announced a string of new deals involving its new subsidiary with major business initiatives extending beyond its three announced countries of activity to extend to Vietnam and China.
In mid-June, the company revealed that the Malaysian Government had signed a five-year agreement to buy the Nexbis product NexCode, a forensic level national solution to be used by the Malaysian Immigration Department to track foreign workers and illegal immigrants. ETC expects it to generate $60-80 million a year once the solution is fully integrated. Negotiations continue to extend the use of the code to both the Home and Transport Departments.
ETC’s technology allows conventional mobile phone cameras to act as secure barcode scanners of documents and labels, thus eliminating the need of costly smartcard infrastructure.
Last month, the Vietnamese road transport authority signed a memorandum of understanding to introduce the technology into driver and vehicle licences.
This month, the company confirmed a deal with the Chinese Government to introduce its scanning technology to the licensing of domestic gas cylinders. With more than 100 million cylinders in China, the company estimates this will provide ETC with $US200 million in revenue over the initial five-year agreement.
ETC’s technology is protected under patents issued in 140 countries.
The directors: ETC’s board boasts a combined 60 years of experience in mobile telecoms. Executive chairman John Houston (52) began his career in Australia as a licensed bookmaker and owner of a TV rental business, before moving on to become chief operating officer (COO) for Orange Thailand, Switzerland and Sri Lanka. CEO Dato Sri Johann Young boasts 20 years in IT/telecoms
As an executive with Hutchison and Orange, before becoming director of Asia for Orange World.
Australian CFO and company secretary Peter Dykes was a founding member of KPMG’s technology advisory practice.
Houston and Dykes must be keen for a lift in the share price for between them they hold around 6 million out of the money options, half due for exercise at 50c on December 1, and the balance at 75c a year later. I doubled our holding.
ETC Price at posting:
36.0¢ Sentiment: Buy Disclosure: Held
