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

NetComm Wireless Limited (ASX: NTC) is a leading developer of technologies that relate to Fixed Wireless broadband, wireless M2M/Industrial IoT and Fibre and Cable to the distribution point (FTTdp / CTTdp), which underpin an increasingly connected world. For over 35 years, NetComm Wireless has engineered new generations of world’s first data communication products and is now a globally recognised communications technology innovator. NetComm Wireless is at the leading edge of key technology developments that provide real benefits to network operators and the group aims to benefit from its growing relationship with nbn, as it expands the planned footprint of its FTTC project. As it has strengthened its sales presence in key strategic markets of Europe, UK and North America, NTC is keenly focused on winning new businesses from Tier 1 Carriers. Network operators, Internet service providers, systems integrators and value-added distributors partner with NetComm Wireless to connect with their enterprise, government and business customers worldwide.
 

NTC Solution Methodology (Source: Company Reports)
 
Wins a Product Purchase deal to support future revenue stream: NetComm Wireless has inked a Product Purchase Agreement with Canada’s largest communications company, Bell Canada for the supply of Intelligent Fixed Wireless Access technology devices. Under the agreement, Bell will use NetComm’s fixed wireless technology to deliver high-speed broadband services to select rural communities, with initial footing in Ontario and Quebec. While no specific unit volumes have been contained in the Agreement, the Product Purchase Agreement is expected to pump-up the revenues in the coming financial years. The initial deliveries of the Intelligent Fixed Wireless Access devices are expected in FY19 based on customer acceptance and regulatory approvals.

nbn’s Expansion of FTTC footprint: NetComm has appreciated the nbn’s announcement of increasing its planned Fibre-to-the-Curb (FTTC) footprint, with an additional 440,000 homes and businesses around Australia set to receive the new technology. After this, total planned FTTC footprint will amount to 1.5 million (approx.) homes and businesses by 2020. As previously announced, NetComm Wireless has agreements with nbn for the supply of both Distribution Point Units (DPUs) and Network Connecting Devices (NCDs) that together provide the FTTC connection to customer premises. At present, NetComm Wireless is the only supplier with tested, approved, installed and working FTTC equipment. Till now NTC has not received any orders in relation to the expansion of FTTC footprint but NTC is hopeful that as the rollout progresses over the coming years, it will receive further orders.

Decent Financial Performance for 1HFY18: The Company released its interim financial results and reported an increase of 89 per cent in revenue ($88.6 million) and this increase was driven from its key projects. Group’s revenue from its high growth M2M business contributed to 85 per cent of the total Group revenue; and was up by 107 per cent ($75.1 million) on pcp basis. The period also saw revenue from the Company’s traditional Broadband business recover and the same was up by 27 per cent as it implemented initiatives to reinvigorate the business. Reflecting the growth in revenue and the Company’s ability to scale, EBITDA was up 13 times ($9.2 million) as compared to a loss of $1.7 million in 1H17. The cash reserve’s balance and unused debt facilities as on 31 December 2017 stood at $13.1 million and at $20 million, respectively. NPAT was up by 317.2 per cent ($3.7 million).Net Tangible asset per share as on 31 December 2017 was34.70 cents as compared to 37.84 cents as on 31 December 2016.
 

EBITDA Performance (Source: Company Reports)
 
During the year, the group secured $20 million worth of 3 year “committed” facilities with its current banking partner HSBC and it replaced the previous $15m facilities which were non-committed in nature. The facilities were not utilised as on 31 December 2017. Over the significant growth period of six months ending on 31 December 2017, NetComm Wireless had just $0.4m in net cash outflows from its Cash Flows from Operating activities, and these were $6.5m negative as compared to cash inflows of $6.1 million which were reported in 1H16. Total Shareholder Equity of $79.8 million increased by 6% or by $4.2 million from $75.6 million as a 30 June 2017. The Group has provided certain guarantees amounting to $1,279,517 for rental and performance bonds as on 31 December 2017 (30 June 2017: $1,260,972).
 
 
 

Growth and Traditional Businesses (Source: Company Reports)
 
Other Updates and Key Achievements: NTC continued to rollout the Ericsson/nbn fixed wireless contract and anticipates launching a new 100mbps service this calendar year (third technology upgrade in only four years). NTC delivered its first sales of fixed wireless devices to AT&T for the initial rollout; and while the pace of the rollout has been slower than initially expected, it anticipates an acceleration in FY19 as AT&T looks to ensure that 1.1 million premises are available for service by 2020. It has further enhanced its relationship with nbn by signing a contract to supply Network Connection Devices (NCD) for its FTTC project. The NCD is a perfect example of NetComm’s approach about “Listen. Innovate. Solve.” to deal with technical challenges, and it believes that there are many use cases for a similar device in international markets. With regards to the dispute of potential infringement of an Australian Innovation Patent, NetComm has contended that the patent in question is invalid as otherwise covered in the statement of claim by Corning Optical Communications Pty Ltd in the Australian Federal Court. NetComm is vigorously defending the claims made against it and this will not have any impact on the performance of the Company.
 

nbn Fixed Wireless Activation and Coverage over the years (Source: Company Reports)
 
NetComm’s 5G investments are focused on the Broadband sector where it has a proven track record and further 5G industry standards (3GPP) are evolving as the initial round of standards ratified in December 2017. It was reported on 8 February 2018 that Fixed Wireless Coverage increased by 305k premises since June 2015 and now it reaches to 573k premises. The take up rate rose from 35.6 per cent (30 June 2017) to 38.2 per cent (8 February 2018) which demonstrates an increase in the market penetration as the rollout progresses.

Positive Outlook: NetComm Wireless expects to continue to deliver strong Revenue and EBITDA growth over the remainder of FY18 as key contracts are further rolled out. As the Group has delivered an excellent operational performance across its key growth business and already has a strong balance sheet and cash at bank, so therefore it is in an excellent position to continue to grow. The benefits from the investments made to enhance its engineering capabilities will continue to flow as it becomes a leading bespoke telecommunications technology solutions provider in global markets. Trade shows have delivered strong leads and accelerate the customer acquisition process by enabling the group to demonstrate its unique capabilities to senior stakeholders. It is actively raising the profile and is driving interest in its solutions across key geographies.

Stock Performance: With the recent deal with Bell Canada, NTC seems to be further cementing the fixed wireless establishments that include contract wins with Ericsson / nbn in Australia and AT&T in the USA. The recent developments thus enable NTC inch towards its targeted growth trajectory in the international space servicing tier 1 telecommunications carriers in developed markets. NTC stock that otherwise rose by 6.3 per cent during the past six months and dropped by 4.4 per cent in the past five days, was seen to rocket up by 17.65% on April 17, 2018 with the announcement of the above arrangement. Meanwhile, Rooke Lane Pty Ltd (trustee for Stewart 1986 Superannuation Fund), the substantial holder changed its substantial holding on 16 March 2018, from 14.7 per cent of the voting power to 12.3 per cent. One of its Directors, David Paul James Stewart having an indirect interest in the Company through Rooke Lane Pty Limited, recently sold 3 million of securities and now after disposal he holds 18 million of the shares. In a March Quarterly Rebalance update, NTC was removed from S&P/ASX 300 Index effective from 19 March 2018. The Group was otherwise awarded with the “NBN Scaling Excellence Award” for its outstanding contribution to the FTTC rollout. The Group accepts the tough challenges and provides its partners the power to optimise the performance of their connected products, services and global networks. Looking at the positive outlook, recent developments and balance sheet scenario, we recommend to “Buy” the stock at the current market price of $ 1.400.
 

 
NTC Daily Chart (Source: Thomson Reuters)

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