Convergence between the internet and mobiles means that mobile telecommunications is a rapidly growing business, especially in emerging markets, where mobile subscriptions are skyrocketing and mobile operators need experienced contractors to help expand their networks. This trend plays perfectly into the hands of telecoms and technology recruiter Networkers, whose shares languish on a 52-week low, despite the group’s resilient growth prospects and impressive AIM track record.
Under Spencer Manuel, the ambitious chief executive who oversaw Networkers’ 2006 £15 million acquisition of IT recruiter MSB International (a business two-and-a-half times its size in terms of sales), a strategy of international expansion twinned with a focus on higher-margin UK business is being pursued.

Firstly, in the UK, growth prospects are robust, based on forecast skills shortages and candidate scarcity in IT and telecommunications recruitment over the coming years, which should sustain demand and drive prices higher.

But it is Networkers’ overseas prospects that have excited analysts (and investors including non-executive director Nigel Wray and renowned venture capitalist Jon Moulton), based as they are on buoyant demand from clients in emerging markets, where there are billions of people with mobile phones, yet little fixed-line infrastructure.
With internet use flourishing and convergence inexorable, Manuel claims that ‘the mobile phone is the killer application as it’s the only way people can get online.’

International Telecoms is the biggest part of Networkers’ business, accounting for more than 25 per cent of net fee income last year. Operating in more than 60 countries – it has offices in China, South Africa and the US, as well as joint ventures in Saudi Arabia, the UAE, Pakistan, Algeria and Iran – its contractors carry out everything, including overseeing network installation, design and planning, organising day-to-day maintenance and network upgrades.

‘We have two types of customer,’ says Manuel, ‘the actual companies that make the networks, such as Ericsson, Nokia, Siemens and Alcatel-Lucent, and the operators, like Vodafone and T-Mobile.’

Typically supplying contractors under long-term deals, business is booming, with recently announced results for 2007 nothing short of excellent. From a fourfold revenue rise to £178 million, reflecting a full year from MSB as well as healthy underlying growth, profits rose to £5.1 million (2006: £3.1 million), while investors were also treated to positive news on debt, with borrowings reduced by £2.3 million to £18.3 million during the second half. ‘We took on debt to acquire MSB, but we are very cash generative and are paying it down aggressively,’ insists Manuel.

One metric that went backwards was gross margin, which decreased from 19 per cent to 13.7 per cent, but this reflected nothing more than a shift in the sales mix following the acquisition of the higher-volume, lower-margin MSB. And on a like-for-like basis in key parts of the business, margins were generally maintained or improved, as Manuel and his team remained focused on higher-value work.

Despite its emerging markets appeal, global diversity and knack of beating forecasts, Networkers’ share price has suffered with the wider sector. Indeed, based on 2008 estimates – profits of £5.64 million and 3.87p of earnings - the shares trade on a prospective multiple of just 5.4, dropping to 5.1 for 2009, representing a discount to peers. Tellingly, at current levels, Networkers is valued at less than half its total assets and only £4.3 million more than the sum originally paid for MSB, which promises good value.

Networkers International	AIM	£11.53m	12.50p	0.00p
Click here for interactive charting
Other company articles:
Networkers looks abroad			16/09/2008
Networkers: growth through global connections			02/06/2008
Networkers’ bullish statement			14/12/2007
Networkers chairman buys a further 500,000 shares			26/10/2007
Networkers a steal on single digit multiple			12/10/2007