TTP Communications - THE BIG WAKE UP CALL

TTP Communications (TTC)

I have watched these for a long time, yesterday’s director buying shook me into action. This is one of the soundest, profit making tech companies going, not a dotcom dream – check out their history. Without a doubt, investors are just saying ‘tech, no thanks, I don’t want to know’. But that has to be the point at which you say to yourself, hey, amongst all the jumble in the sale, some have thrown out the odd Gucci, or Versace.

Firstly, this company has always made profits and grown profits well.
For the year gone, pretax was up 8%, eps was 1.592p compared with the previous year of 1.691p pre exceptional – hardly a dire performance.

TTP has two divisions TTPCom Ltd and ip access. Ip access is a joint venture and losses money, but losses hear have topped out, which should help the total profit performance (I know, all this losses and tech words sounds off putting but bear with me).

G3 is taking too long to roll out. 2.5 and GPRS are what the providers have now. TTP together with EDGE have technology that speeds GPRS up 3 times – this is being taken up by mobile providers in order to get the new phones with all the new things like video and games running.

With ip access, TTP have developed a technology which allows games to be played over mobiles – almost Advanced Gameboy quality, good colours and just what the likes of Vod need to sell more services. Companies are already buying this and it is far better than Java.

Okay – I’ll bore you no more – this company is doing the business – it is increasing R&D and headcount and still generating good cashflow and profits. It will benefit this year from reduced losses at ip access and also a fall in the tax rate due to R&D capitalisation – the tax rate falls from 33% to 25%.

Sales increased 47% for the year gone, and while margins got squeezed a tad, the coming year will see much greater royalty payments as they had an issue last year with a company where royalties fell as the company went through a quantity break.

At 40p, the PE for the year gone is 25, consensus PE forecast for this year is a 12, falling to 7.7 – that is incredibly cheap, especially for a company with plenty of cash and trading not that much above NAV and set to grow earnings by very high double digits for years to come.

I feel the market has shunned the good techs and it would seem the directors agree – voting with their cash. There has been some big director buying yesterday – this comes as the results are just about to be published in a fortnight - mid October. Would these directors be rushing to buy before the results if they were going to be bad?

Since the last results they have done deals with LG Electronics, Sharp, Siemens and Analogue Devices. Their technology is increasingly going into things like car telematics and digital cameras.

I reckon it is well worth reading the last set of results, and doing some research on the company. The company has sounded very bullish going forward – adding heads and increasing R&D while growing pre-tax does not sound like a company that is struggling.

I’ve just ISA’d 15K this am – buy within spread if you buy, as the spread is large. Longer term I can see this one really returning to former glory, hard to see in most techs.

CR