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 Ltd (ASX: NTC) is recently gaining traction given the significant upside from many potential contract-wins and upsizing of either the NBN Distribution Point Units (DPU) or AT&T Fixed Wireless contracts. The group has multiple product lines that are known to generate revenues and include fixed wireless and Internet of Things (IoT)/M2M (machine to machine).

Delivered an outstanding M2M growth:NTC has delivered an outstanding growth in their M2M business (which includes fixed wireless and distribution point technologies) offsetting the pressure from their broadband business. The group’s M2M revenue surged 46.9% on a year on year (yoy) basis and generated $86.3 million in revenues for FY17 as compared to $58.7 million in prior corresponding period. M2M business is now contributing 80% of the group’s overall revenue. Major drivers for M2M include the starting of deliveries of the Fibre-to-the-Curb technologies (FTTC)/Distribution Point Units (DPU) to the nbn™. Ongoing rise in their overseas M2M business coupled with the sales from the Ericsson/nbn fixed wireless project as the roll-out continued drove the segment’s momentum. Overall, NetComm Wireless reported a revenue growth of 26.3% on a yoy basis to $107.6 million for FY17. On the other hand, the group’s revenues from their ‘base’ broadband business fell by $5.1 million to $21.3 million on the back of falling orders related to their powerline and filters business. Meanwhile, NTC is reinvesting in the business to leverage the wide growth opportunities. This move has led to some FY17 EBITDA pressure (which fell to $3.6 million), but the group seems to be on track to achieve the forecasts going forward.
 

Enhancing growth business performance (Source: Company reports)
 
Potential market opportunities: The group is well positioned to leverage the initiatives from the government and telecom firms. They have identified major growth markets which are Fixed Wireless internet; connecting rural communities with high speed broadband, Distribution Point Units (DPUs); as well as connecting new fiber networks to the last few meters of copper running from each house to the street, and Machine to Machine (M2M) technology. NTC has a solid target market opportunity as the global IoT market is forecasted to grow to 27 billion devices, generating USD 3 trillion revenue by 2025, as per Machina Research. The group is focusing on Industrial IoT (machine to machine) and especially the higher specifications and speeds segments. The group has made investments in people and infrastructure in FY17 to strengthen their capabilities in the M2M space. NTC continues to supply M2M devices to major global customers, in the industrial IoT, FMCG and elevator industries; and is also looking for M2M opportunities globally with Tier 1 customers, with a special focus on the USA, UK/Europe and Australia.
 

Strong network partnerships: The group’s long term IoT partner, Vodafone is the first global IoT mobile provider to exceed 50 million connections, and continues to see a rise of over one million new connections a month. Further, Coca-Cola Company uses the group’s devices for all 5 of their FreeStyle Machines. NTC cellular routers are enabling the Coca-Cola to capture predictive maintenance information, customer usage metrics, as well as making a quarterly remote updating of the software and display information. NTC started the supply of FTTdp Distribution Point Unit (DPU) equipment for nbn’s Fibre-to-the Curb (FTTC) deployment in Australia. The service target was initially for 700,000 premises, but currently the nbn FTTC roll out is targeting to serve 1 million homes and businesses nationwide by 2020. Meanwhile,  NetComm Wireless, nbn and Ericsson are demonstrating the next generation nbn Fixed Wireless. The nbn™ Fixed Wireless network is built to support the potential digital demands of regional Australia using Ericsson’s network infrastructure as well as the NetComm Wireless’ Intelligent Fixed Wireless Access device (IFWA). The group’s next generation IFWA would deliver 100Mbps to rural and regional Australia in 2018. In the US market, the group is working with AT&T Inc to supply the Outdoor Wireless Antennas needed to bring Fixed Wireless Internet connectivity to select rural and underserved premises across the US. AT&T has deployed their first wave of Fixed Wireless service in Georgia, and is targeting to serve over 400,000 locations in 18 states by the end of 2017, with the potential to rise to over 1.1 million by 2020, as part of its FCC Connect America Fund (Phase II) commitment. It is interesting to note that NetComm Wireless’ Outdoor Wireless Antennas will form a direct line of sight connection between the customer’s premises and the network tower to deliver home Internet download speeds of at least 10Mbps.

 

Ericsson/NBN rollout (Source: nbn, company reports)
 
Positive Outlook: NetComm forecasts a positive year on year revenue and EBITDA growth in the 2018 financial year, driven by their major contracts. The group expects to see the benefits of their investment efforts in FY16 and FY17, and continues to focus on enhancing their market share in the major verticals. The group aims to win further contracts in their major markets of Fixed Wireless, DPU and M2M, leveraging the built capabilities. In June 2017, Openreach (British Telecom) successfully tested a new Fibre-to-the-Distribution Point (FTTdp) solution using a Gfast Distribution Point Unit (DPU) engineered by the group showing the possibility of delivering Gigabit speeds to end users. The group is in the delivery phase of supplying DPUs to nbn for their mid-2018 launch of nbn™ Fibre to the Curb project. nbn would also launch 100 Mbps Fixed Wireless using the third generation of NetComm Wireless’ Fixed Wireless technology in 2018. The group expects solid potential for the Fixed Wireless, DPUs and M2M especially in the Australia, North America and Europe, and is well positioned to capitalize on these opportunities based on the experience with Tier 1 customers. The group is developing customized, scalable solutions to reduce the competition and enhance the value for Tier 1 telecommunications carriers, network operators, enterprises and governments at a global level. NTC has built expertise and in-house engineering capability needed to solve the complicated challenges related with the last 10% of network infrastructure while avoiding the 90% of the market that is dominated by major industry players who compete in a high-volume, low margin one-size-fits-all environment.
 
Stock performance: Post a roller coaster ride this year, the shares of NTC rallied over 23.6% in the last five days (as of October 23, 2017) driven by the positive outlook delivered by the management. The group expects the M2M and Fixed Wireless businesses to continue their growth momentum. NTC also generated small revenues from initial deliveries for the Fixed Wireless project in the USA during FY17; and the group expects their ‘base’ broadband business which declined by $5.1 million to $21.3 million in FY17, to return to growth revenue going forward. New opportunities emerging from customers’ upgrade of equipment driven by the nbn roll out would drive further momentum. NTC has established partnerships with several major telecommunications’ firms worldwide and has started the rollout of major contracts. The uptick in group’s new contracts from AT&T Fixed Wireless and nbn DPU, is expected to drive the revenues and earnings across upcoming financial periods. Cash balance of $22.1 million with no bank debt, makes NetComm to position itself well for M2M, Fixed Wireless and DPU growth opportunities. Operating cash inflow of $8.2 million has depicted a solid $10.2 million turnaround and supports the group’s strict management of working capital. The group also has access to $17 million financing arrangements, and this offers the flexibility to fund NTC’s potential pipeline. Based on the foregoing, we give a “Buy” recommendation on the stock at the current price of $1.345
 
NTC Daily Chart (Source: Thomson Reuters)

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