27/03/2007
The ‘dot.com’ boom of the late 1990s is chiefly remembered for the wild valuations placed on businesses that often did not generate revenues, let alone profits. Many firms experienced huge share price rises, but after the bubble burst – and investor cash ran dry – they soon went out of business.
However, a handful of technology companies whose shares shot up to crazy heights (only to come right back down to earth again) are still operating and, indeed, thriving. These businesses were easy to tell apart from their dot.com peers: they often had real products and real revenues, and one of them was Israeli company BATM Advanced Communications.
There was great demand for the company’s shares during the internet boom because it made high-speed data communications equipment – a key part of the infrastructure of the new ‘information economy’. In just over a year to September 2000, BATM’s shares increased eightfold, hitting a high of 765p.
Sadly, BATM was just one of many companies making telecoms networking components at the time. Years of excess spending on infrastructure by the telecoms industry soon led to a recession; by the summer of 2001 the shares had fallen back down to their pre-2000 levels. They have remained there ever since.
But the shares could soon be on their way back up, with BATM having recently reported a return to full-year profitability: pre-tax profits for 2006 came in at $7.4 million (£3.8 million) – against a 2005 loss of $2.7 million (£1.4 million) – as turnover increased by 30 per cent to $73.5 million (£37.5 million).
Zvi Marom, chief executive, says the results confirmed his view that BATM has emerged from the telecoms recession ‘in excellent shape’. During the telecoms downturn, Marom made a point of increasing expenditure on research and development (R&D), and this strategy appears to be bearing fruit.
Last year the company embarked on several projects with major telecoms carriers, including a number of pilot projects that Marom thinks will convert into significant business next year. ‘We believe 2008 will be a very good year,’ he enthuses, ‘as many of the pilots we are doing will become full-blown deployments then.’
BATM – whose main markets are in the US and Europe – has also increased its global presence, due to a focus on new regional markets in Asia. Marom expects to see revenues from the Far East start to grow this year.
Despite the company’s focus on R&D, costs associated with this activity actually fell last year, due to BATM transferring most of its US-based R&D operations to Eastern Europe and Israel. But the company’s R&D effort is paying off: BATM will soon launch an ‘integrated business solution’ for the North American market that will allow carriers to provide both new and legacy services over internet protocol-based networks. The management expects this new product to enhance the group’s position in the US and, subsequently, in Europe and the rest of the world.
BATM believes that current telecoms industry consolidation – demonstrated by the forthcoming merger between Nokia and Siemens – will mean some uncertainty in terms of visibility over the next few months. However, the effects of consolidation will be positive in the longer run.
This year, house broker Shore Capital expects growth in earnings from 1.3p to 1.6p a share, which means BATM’s shares trade on a multiple of 18.75 times. This is good value for a business whose earnings are set to increase by around 30 per cent next year and which had more than $40 million net cash at the end of 2006. Buy.
| LSE | £119.83m |
30.75p
|
-1.75p
|
|
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