SS I have been invested in NTC since 2006 and I have done my...

SS

I have been invested in NTC since 2006 and I have done my fair share of analysis, not only of the company but of the sector in general.

The fixed broadband business is a low margin business, hence why Novatel Wireless is doing poorly and why Sierra sold off their division. NTC is doing ok in fixed broadband due to the NBN project so it has a limited life (many years though) and limited profit potential. I actually expected better figures for fixed broadband so I was a little disappointed with the results.

The real money (for now) is M2M and NTC are doing OK, but nothing of grandeur. The smart meter project came and went and I don't see any further projects on the horizon for NTC. This is because NTC's product is too expensive compared to its peers. Smart meter manufacturers are working with M2M chip makers rather than companies like NTC. The Opal contract came and went. Both of these projects didn't have any significant impact on the bottom line, this is concerning. One metric that is very important when valuing a company like NTC is operating margin and NTC's operating margin is not great.

Where is the n-hub contract that should have been done by the end of 2015? Where is an elevator contract or even a mention of it?

NTC has had some luck with fixed wireless and good on them, they deserve it. The NBN project will see decent revenue and profit for NTC. One thing to note is that the ramp up in activations started in early-mid 2015 hence shipments would have increased significantly around the same time, yet NTC only posted a $2M FY15/16 half-year profit. Now this could be because of the timing of the shipments and I did say that the first half is usually lower than the second half. One could argue that NTC are also ramping up for the US fixed wireless project but I see that they are capitalizing those costs.

As for the US fixed wireless project, the project revenue and profit are still unknowns and any significant revenue is at least 12-18 months away. The deal is also not 100% guaranteed and that can cause some investors to consider the risk too high. Whilst the rewards could be huge, we have no idea about the quantities and profit margins so investors need to have faith/optimism to buy at these levels.

I think NTC are being cheeky when they classify their fixed wireless revenue as M2M revenue. Where is the machine at the rural premise? There isn't one and the fixed wireless revenue should be seen as broadband revenue. NTC's classification of this revenue is a pathetic attempt to attract investors thinking that NTC is growing its M2M revenue when in fact its real M2M revenue is falling.


Getting back to your belief that NTC is worthy of a takeover. A potential buyer will ask themselves should I buy NTC or make what NTC makes. What does buying NTC give me that I can't make myself? When making this decision the price to paid to buyout NTC is far in excess of what it costs to make what NTC has. NTC does not have any patents, their products are one of many out there. If it isn't already clear, NTC outsource their manufacturing so they just design, development and test and sell. Not really a company worth buying out.

I was a massive supporter of NTC when the share price was in the teens but as the share price grew so did my expectations and NTC still have a lot of work and need a lot of luck to warrant their current share price. We will need to wait another 6-18 months to see if NTC live up to the expectations of $300M market cap company. I am only holding some remaining shares for tax purposes and I may buy again when the price drops below $1. I wish NTC all the best and I really hope they do well but I can't see the fundamental value in the current share price.