Company Overview: NetComm Wireless Limited is engaged in the development of fixed wireless broadband, wireless machine-to-machine (M2M)/Industrial Internet of Things (IoT), and Fiber and Cable to the distribution point technologies. The Company operates through two segments: Broadband Business and Machine to Machine Business. The Broadband business segment supplies communication devices, which range from entry level gateways to high-performance devices that supports triple play services covering high-speed data transmission, multi high definition (HD)/4K Internet Protocol television (IPTV) and over-the-top video streaming, as well as voice over Internet protocol (VoIP) phone calls. The M2M business segment specializes in the development of technologies sold to telecommunications carriers, core network providers, system integrators, governments and enterprise customers around the world. The M2M business also includes network terminating devices designed to advance global network performance.


NTC Details

Large order secured for new Network Connection Device: NetComm Wireless Limited (ASX: NTC)  has developed a new Network Connection Device (“NCD”) and got a major order from their initial customer, NBN. This new device, NCD is a new product category for global markets for using in conjunction with NetComm Wireless’s world leading Distribution Point Unit (“DPU”). NCDs would undergo operational, customer, business and field testing with the nbn before the commercial launch. Starting volume commitment from nbn, is forecasted to grow over time, leading to revenues of $66 million to NetComm Wireless. This provides for incremental revenues (above those relating to the Reverse Power Feed only unit) of over $40 million within a period of 18 months post the launch, which has been scheduled for the first half of the year in 2018. Given the group’s nbn’s Fibre-to-the-Curb project, the group believes that nbn is a natural inaugural customer and would offer NCD technology to further enhance the effectiveness of the Fibre-to-the-Curb rollout.

 
Expanding nbn fixed wireless activations and coverage: The group enhanced their Fixed Wireless coverage to 555k as of November 2017, from June 2015. The take up rate rose to 37.4%, showing rising market penetration. The connections were activated up to 208k premises. nbn would launch new 100mbps service during 2018. The group’s Fixed Broadband business comprises over 20% of the overall group revenue. However, the global shut down of copper lines hurt the fixed line (ADSL) broadband. On the other hand, the Boston Consulting Group concludes that Fixed Wireless is the best solution which has a total addressable market size of $80 billion. The group is pursuing multiple global Fixed Wireless opportunities, which has a major focus on the US and Europe. Moreover, the group is positioning itself for new growth businesses which serve the fixed wireless, DPU and M2M markets to offset the slow-down in sales of powerline devices and ADSL filters. The nbn deployment and the need to upgrade Customer Premises Equipment, is revamping the growth momentum.
 

Rising nbn fixed wireless activations and coverage (Source: Company Reports)
 
FY17 highlights: For fiscal year of 2017, the group delivered an EBITDA of $3.6 million, which was in line with their expectations. They delivered a solid revenue growth of 26.3% to $107.6 million for the year. Their Fixed Wireless solutions and FTTC Distribution Point units grew even more strongly, with revenue from these devices enhancing 47% to $86.3 million with nbn and AT&T starting to scale. The group’s growth businesses, Fixed Wireless, DPUs and M2M, currently represent over 80% of Group revenue, which is an increase against 69% in Fiscal year of 2016. With the key projects enhancing their scale the group forecasts this trend to continue while diversify their revenue streams. The group got the first orders from nbn for their Fibre-to-the-curb (FTTC) DPU devices that were delivered from June to August in 2017, while further orders were received from September. Their AT&T Fixed Wireless project started with the first units delivered in the last month of FY17 as AT&T rolls out to an initial 18 States and targets at least 400,000 homes covered before the end of 2017. This deployment has to offer coverage to over 1.1 million locations by 2020, as part of the FCC Connect America Fund commitment. This project has the potential to scale further in the future as the business case for Fixed Wireless is compelling for the customers. Even though the penetration of these devices is slightly behind the expectations, they forecast to pick up soon. The group has put several more opportunities before AT&T to leverage their good relationship with the firm.
 
Balance sheet highlights: The group has built solid operating cash flows of $8.2 million during Fiscal year of 2017 against a $2 million outflow in FY16. They maintained their focus on capital management to ensure the balance sheet is strong despite investments in equipment and people. The group has no debt and with decent cash in the bank, they are well placed to pursue their growth strategy and deliver a pipeline of attractive global opportunities. The group has bank debt facilities in place for $20 million.
 
Focusing on innovation: During the first quarter of FY17, the group formed their first US based Research & Development centre in Sunrise, Florida. This is a well-known technology hub, which attracted several multinational technology companies as well as talented telecommunications engineers. The group has 32 highly talented and experienced software, hardware and radio frequency engineers at the centre. With this, the group is serving their US based customers and partners’ needs and requirements, while also strengthening global product design, development and testing capabilities. NTC had invested $23 million in FY17 on planned initiatives.
 

Reinvesting for Growth (Source: Company Reports)
 
Outlook: Going forward, for fiscal year of 2018, the group forecasts to get a major significant uplift from key contracts, enabling them to achieve strong growth in revenue and earnings, as compared to FY17. Moreover, they forecast to see benefits materializing from the investments they made in the last two financial years. The group believes that they are ahead of the curve and is a world leader in Fixed Wireless Network Termination Devices (NTDs) and pioneers in ruggedized DPU solutions with a world leading reverse-power technology. Given this expertise, they are in active discussions with multiple customers in multiple continents and are choosing opportunities that would be at scale. The group is aiming to boost their market share in major verticals and continue to nourish and develop their strong relationships with Tier 1 customers. Given their local and international R&D facilities coupled with expertise of top class engineers, the group is developing innovative solutions, and intends to further enhance their product offerings as well as win additional contracts in the large markets of Fixed Wireless, DPU and M2M.
 

Sales Strategy (Source: Company Reports)
 
Stock performance: The group is well positioned in wireless as well as fixed line segments. The group’s wireless products are already deployed in Australia and the US with efforts being made to be a tier one telco in North America, Europe and the UK. Their leading fixed line technology for delivering Fibre to the Curb is being deployed in Australia by nbn while discussions are underway for overseas markets. NetComm Wireless has market leadership in some areas and is expected to take advantage of this leadership to drive long term growth. The group has been making investments to maintain their solid position. They have added highly experienced specialist engineers to enable them to develop bespoke solutions for customers, while taking steps required to reach the next stage of growth. On the other hand, the shares of NTC lost over 25.7% in the last six months (as of January 29, 2018) at the back of volatility and some litigation news. But the group is positive about cross selling opportunities with nbn for their devices over time. Management is positive about their growth prospects going forward and are expecting a step change in the company’s results in FY18 and beyond. NTC stock has been consolidating this year to date with a 3.3% rise and the stock rose over 5.1% in last five days as on January 29, 2018; and this may be owing to revamped sentiment given the rising demand of group’s products in the long term. We believe there is more potential in the stock with management expecting a better FY18 performance and rate it a “Buy” at the current price of $1.225


NTC Daily Chart (Source: Thomson Reuters)

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