Teliti Share Discussion Threads

[blank frank] 14/9/2006 19:03

In contrast, telecom shares lacking one or more of the above traits may not be a success:-


29/03/2005 18:31 UKREG Update on administration




20/12/2005 08:15 AFXF Canisp H1 pretax loss 244,000 stg vs loss 512,000; turnover 1.9 mln stg




02/05/2006 15:09 AFXF Envesta Telecom to wind up from May 3; sees no distribution to shareholders




10/05/2005 17:52 AFXF TTG Europe says it has been placed in administration




23/05/2006 10:12 AFXF PNC Telecom sees potential liability after Vanguard put in administration

[gerry2] 14/9/2006 18:45

I Still have My Energis Shares ?

LOL

[blank frank] 14/9/2006 18:42

The telecoms sector suffers from quite intense competition, and falling call prices.

The most successful telecom cos. may therefore be those with the following traits:
• Defensiveness.
• Low cost base.
• New products to sell/resell.

TEL looks doubly defensive:
• Telephone maintenance contracts required by law.
• Business model has less effective competition than telecom mainstream.

The telephone maintenance market is not a key one for very large telecom cos., but few small telecom cos. have the nationwide coverage and range of product maintenance capabilities that TEL has. And the cost of investment into infrastructure and skills made by TEL provides some barrier to entry.

Of TEL's income streams, " ... only in the smallest area of business, Least Cost Routing, is there likely to be any serious margin pressure" (28/9/04 Hardman Research note on TEL). In addition, as TEL is a 'reseller', falling call prices should be less negative for it than for 'carriers'. [ ] This is also the only area which looks potentially 'at risk' from internet telephony.

TEL's margins have actually been improving, which is clearly very encouraging:
01/12/2005 07:01 UKREG Final Results
"Whilst margins have also been improved by the introduction of acquired companies they also show the company's improved bargaining position from its new financial stability and public status and higher profile in the marketplace."


Improving margins are of course a sign of a strong competitive position; whereas declining margins are often a sign of increasing competition having a negative impact.

TEL is set up on a low-cost base, operating from two main premises: the overall HQ in the West Midlands, and the premises of acquisition Westcom Technical Services in Herefordshire. And it has substantial scope for cost-cutting on acquisitions.

"System Sales account for 43% of revenue, and has almost doubled over the past two years. System sales are in general made to maintenance customers who need to update or unify their systems, rather than the other way round.
... Technological advances, such as automated switchboards where the payback in labour savings is less than twelve months, more sophisticated voicemail, and automated call transfers are driving the demand for new equipment.
... Because TMG is not bidding for new business but merely servicing its existing customers, its cost of acquisition for new business is low. It also finds less pressure to quote crazy margins."
(28/9/04 Hardman Research note on TEL. N.B. 43% figure is presumably for 2003.)

TEL's annual report for the year ended 31st. July 2005 highlighted that the company is already benefitting from the burgeoning VoIP market:
"Analysis of Principal Revenue Streams
Maintenance 35%
New systems inc VoIP 38%
Additional equipement and services 17%
Call billing 10%"

The company has shown an excellent record of customer retention, and selling of additional products and services to those customers.

B.F.

[blindfaith2] 14/9/2006 18:32

Ten – I'm with SteMis on this one. If a company has a site then they should keep it up to date and actuate, if not, to me it appears as if the company is sloppy with a don't care attitude.

The site is not there just for PI's, it's available for all to see so if you have a site it must be on the button to give a good impression.

Attention to detail is what singles out the good uns from the bad uns.

[tenapen] 14/9/2006 14:36

SteMis,
there are loads of companys out there with poor web sites. Yes it is annoying for some PIs but i feel it is no reflection on the company. The people who realy matter i.e the companys TEL are pitching thier wares to i do not think will look at the web site just the contract details. IMO

The worst company web site i ever saw was MMG. It was so bad they have taken it off line, but it does not stop people investing it they beleave the story being told.
kenny

[stemis] 13/9/2006 07:39

I fully agree that a strong TEL share price and healthy rating is important to an acquisition strategy, and I believe that TEL's directors fully realise this.

Do they?

It is now over 3 weeks since I wrote to TEL outlining how they could improve their web site for private investors (e.g. downloadable pdf files of any/all of annual reports/interim results/broker research/listing prospectus). So far no reply and no changes to web site. Considering how little effort it would take to do these things, it would be worrying if they thought they had better things to do.

It is ironic that a company involved in communications is itself so bad at communication!

[blank frank] 12/9/2006 21:12

Looks like there are now seven TEL shareholders on this thread. 'Blake's Seven' perhaps (or maybe even Blank's Seven!), on a trip to the stratosphere on starshare TEL.

To celebrate, here are seven choice quotes from that classic space series (which may be of some relevance to TEL investing and posting over the last couple of years):-



Avon-'I don't take anything on trust.'

Dayna-'Don't you ever get tired of being right?' Avon-'Just with the rest of you being wrong.'

Vila-'I used to say to people 'I bet Avon's got a friend, somewhere in the galaxy.' Avon-'And you were right. That must be a novel experience for you.'

Servalan-'I don't think of you as an enemy, Avon. I see you as a future friend.'

Avon-'Of all the things I have known myself to be, I never recognized the fool.'

Avon-'I've learned to live with disappointment.'

Avon-'Oh, and I'm a man of my word. In the end, that's all there is, really.'





P.S. Here are some links to some more "Blake's Seven" quotes, for those interested:-

[blank frank] 12/9/2006 20:12

Welcome to the new TEL thread Kimboy2 - nice to hear from you again.

I fully agree that a strong TEL share price and healthy rating is important to an acquisition strategy, and I believe that TEL's directors fully realise this.

Fortunately, the TEL share price is now moving in the right direction, and a good set of final results should help to continue that.

Acquisitions are though only part of TEL's 'story' - organic growth alone I believe makes this an exciting investment.

B.F.

[kimboy2] 12/9/2006 19:08

Blank
I understand the theory, that is why I bought some in the first place. The problem is they don't have any cash and the paper is probably even lower rated than the acquisition.

[blank frank] 12/9/2006 18:31

Thanks for that Jonwig.

The following is an extract from the 28.9.04 research note on TEL by Hardman & Co.:-
"A financially strengthened and AIM quoted Telephone Maintenance Group ought to be in a very strong position to buy up small maintenance and installation companies. A considerable number of these were started using redundancy money as starting capital, during the peak years of staff reduction at BT in the late 1980s and early 1990s, and their owners are approaching retirement age.
TMG ought to be able to buy these companies for less than a year's turnover, or at possibly no more than four times after tax earnings if directors' earnings are ignored. They can then be folded straight into the TMG system. There will be no need for the acquired company to keep on its office, there will be no need for directors to stay on and take a salary. Relocation costs will be limited to little more than file transfers. There may be some redundancy costs, and there will certainly be staff retraining costs in order to bring employed engineers up to TMG's multi-system standards. But even so the entire process ought to be strongly earnings enhancing."

TEL's 2005 acquisitions of Clansey and Westcom suggest that small acquisitions at the above valuations are indeed possible.

If TEL progresses as hoped, the company should then be in a good position to 'hoover up' unlisted telephone maintenance minnows, which could be extremely earnings enhancing.

B.F.

[blindfaith2] 12/9/2006 16:50

Fairly bullish report !

[jonwig] 12/9/2006 16:34

The September Hardman comment on TEL, copied from elsewhere:

The last trading news from this company – which does what its name says – was in mid-June, when it said it was trading 'broadly in line with expectations'. New business has been won from HMV, Lookers and Osborne. The combined value of this work is over £300,000.

The company has a July year end. We do not expect the results to be announced until November.

On the technical front, a share consolidation has taken place, and investors now have 1 new share for every 50 old shares previously in issue. The market has taken the consolidation well, and the shares have risen almost 40% since the consolidation took place. There is clearly some appetite in the marketplace for the shares in their new form, and we can expect more institutional interest in Telephone Maintenance Group from now on. This is important, because it was launched on AIM as a consolidation play in the telephone maintenance area, and there are lots of small private company acquisitions to be made in this highly fragmented industry.

[blindfaith2] 12/9/2006 10:10

BF – Thanks, it appears I am incorrect. My thought was that with a new contract comes the installation of some or all of the new equipment that is needed and then it is just maintained for the next say 3/5 years until it is upgraded.

[blank frank] 11/9/2006 20:20

Blindfaith2 - 11 Sep'06 - 14:09 - 29 of 30
" ... It would be interesting to see some information regarding sales mix as I expect the hardware side to be fairly competitive margin wise, with the profits in the maintenance contracts. ... "

BF2,

I'm not sure that's the case actually.

From the 28th. September 2004 research note by Hardman & Co. (the most recent TEL research note I have been able to obtain):-

"System Sales account for 43% of revenue, and has almost doubled over the past two years. System sales are in general made to maintenance customers who need to update or unify their systems, rather than the other way round.
Technological advances, such as automated switchboards where the payback in labour savings is less than twelve months, more sophisticated voicemail, and automated call transfers are driving the demand for new equipment.
Because TMG is not bidding for new business but merely servicing its existing customers, its cost of acquisition for new business is low. It also finds less pressure to quote crazy margins. Most telecoms equipment manufactureres allow their resellers a margin in the region of 40%. With volume rebates and other incentives, and the mark up on installation and staff training, TMG is able to improve on that."

In this respect, TEL's recent "TMG plc Shareholder News" contained quite a bit of encouraging detail on TEL's recently announced contract extension/wins.

All these new customers, and more, are apparently embarking upon CAPEX (capital expenditure) programmes to upgrade their telephony systems:-

"Travis Perkins
www.travisperkins.co.uk
2005 turnover £2,640.8 million
TMG Telecom deliver a seamless national telecoms service for all 1000 sites, the success of this three year partnership has been rewarded with a new three year contract agreed till May 2009.
Travis Perkins is a leading company in the Builders' Merchant and Home Improvement markets. Our service to Travis Perkins includes account management and fulfilment of all Travis Perkins telephony services including maintenance, engineering support and customer service to all sites across the UK. TMG telecom manages and 100% fulfils, a CAPEX rollout programme of telephone systems which will enable Travis Perkins to benefit from the operational efficiencies of VoIP technology, as well as providing voice and data consultancy advice. ...

HMV
www.hmvgroup.com
2005 turnover £1,885.6 million
TMG Telecom has secured a new maintenance contract to support all 229 high street retail outlets across the UK.
HMV is one of the most well-known and respected music and video retail brands around the globe and as part of HMV group, Waterstone has recently been acquired.
TMG Telecom delivers national maintenance coverage and are providing resources to implement their CAPEX rollout upgrades to IP based telephony and data infrastructure.

Lookers Plc
www.lookers.co.uk
2005 turnover £1,231.6 million
TMG Telecom successfully won the maintenance contract to support the telephone infrastructure for 75 national car dealership sites.
Lookers plc is a multi-franchise main dealer group with sites across the UK. Impressed with TMG Telecom VoIP experience, manufacturer range of engineering support and UK coverage secured TMG the maintenance contract in February 2006. Lookers have asked TMG Telecom to work with their management team to formalise an investment programme to increase the efficiency of their telephone infrastructure.

Osborne
www.osborne.co.uk
2005 turnover £224.5 million
This contract became operational in May 2006, TMG Telecom has delivered efficiencies and network savings through implementing a complete managed service tailored to 49 sites.
Osborne's is a UK construction business focused on building and maintaining railways, roads, homes, hospitals, schools and offices. Core to Osbornes and TMG Telecom working effectively together is the agreed "Telecommunication and Managed Service Agreement" which is given to each of Osbornes` sites. This document simply and clearly provides information on how to access all telecoms resources, service processes and service level agreements. Benefits to Osbornes` continue to be: cost savings of fixed line services accessible online, administration efficiencies of a "one stop service" and a managed programme of VoIP technology.

Allpay.net
www.allpay.net
Westcom Technical Services (a recent acquisition) has secured a large installation project to provide infrastructure capability to Category 6 standard. This is one of many infrastructure upgrade programmes secured by Westcom to enable fast data and voice network performance.
Allpay.net is the UK's most complete Payment Solution Specialist, with over 40,000 UK outlets offering modern payment solutions to any industry requiring any kind of revenue collection."



This suggests that TEL's selling of systems to its maintenance customers is very successful, fuelled by the current move to VoIP (voice over internet protocol) technology. This should not only be great for TEL's turnover, but also its profit, as margins here are so good.

This underpins my optimism for TEL's results in 2006 and 2007.

B.F.

[outsider] 11/9/2006 14:36

BF said:

"Wages for SIN, perhaps?!
"


Maybe :-) Up 16% today & still trading 40% below fair value in my view.



Good luck with TEL it's still very cheap, I just switched 'horses'.

[blindfaith2] 11/9/2006 14:09

Without the benefit of seeing a copy of the detailed P & L account I doubt we shall find out. I guess the business profile has been changing, making comparisons pretty worthless but looking back I may have been a little harsh in my post 27 as it appears that overhead %ages have been falling but then again so has GP. Whether or not this has anything to do with a cross over of analyses of expenses I have no idea but I would have expected their Accountants to be pretty hot on avoiding this.

It would be interesting to see some information regarding sales mix as I expect the hardware side to be fairly competitive margin wise, with the profits in the maintenance contracts. If this is the case a swing one way or the other could have quite an impact on the bottom line.

[jonwig] 11/9/2006 12:39

Hello BF2.

That's what we'll have to see. I wonder if they are booking some costs to admin which might be booked to cost of sales?

Alternatively, they had 55 staff in the last accounts: it will be more now, of course.

I count 21 smiling people on the last page of the newsletter: these will be the helpline staff I suppose, and will account for a proportion of the admin costs (say £500,000) whilst director pay will come in well over £300,000. Even adding on the costs of retaining advisors for all their share issues and EGMs, that hardly accounts for half the total.

They need to generate about £150 of turnover for every extra £100 of admin costs. That may well be feasible of course, if Jo Upton and her team can seduce (as it were) new clients and retain them!

[blindfaith2] 11/9/2006 11:50

Jon – I fear you will be correct re admin exp's.

TEL have not imo demonstrated the ability to absorb new turnover without overheads going up by more than I would like to see. I think the past has been a little cloudy as I don't think there is any doubt that before they came to the market they ran the business on a shoe string and then I believe things fell into a bit of a comfort zone when there was cash to spend and the bank manager stopped phoning.

I'd like to think that all this had settled down by now and they had learnt the acquisition game re overheads, but the temptation of getting a few more people into HO should be avoided until absolutely necessary.

I have not got the figures to hand but I remember looking at this before and overhead spend was holding back profits more so than lack of turnover.

[blank frank] 10/9/2006 18:33

Outsider - 10 Sep'06 - 08:01 - 23 of 25
"Taken my profits, funds put into what I think is less risky & feel more comfortable holding long term... SIN."

Congratulations on your profit Outsider. Wages for SIN, perhaps?!

Thanks for the vote of confidence Kenny: I think it's especially meaningful that you've 'put your money where your mouse is', as I know that you don't have that much, working on a building site.

Interesting analysis Jonwig. My main comment is that your £3,476M. of second half turnover should be exceeded - to hopefully offset increases in admin. costs (I'd expect them to be higher, but not necessarily a lot higher). As well as a full half year contribution from the Westcom acquisition for the first time, TEL will also be benefitting from new contracts.

I know that a profit warning can be issued late, even the week before results ... in fact, I can recall one case where one was issued WITH the results for the results in question! But generally speaking, once you're nearly a month and a half after a company's year end you should be past the main 'danger zone', certainly for anything cataclysmic. And TEL's low rating does give considerable margin of safety.

B.F.

[jonwig] 10/9/2006 10:56

To make £500k PBT for the full year, the H2 will need to look like this (last column, all figures £'000):


2004-5 2005-6
H1 H2 H1 H2
Turnover 1,831 2,888 2,709 3,476
Cost of sales -562 -993 -956 -1,209
Gross profit 1,269 1,895 1,753 2,267

Admin exps -1,391 -1,655 -1,693 -1,693
Operating profit -122 240 60 574
Interest payable -52 -50 -67 -67

Profit before tax -174 188 -7 507

I've assumed gross profit margin of 65% (it's roughly steady at that) and the same admin and interest charges as H1.

The growth of turnover looks achieveable (the rate was greater in 2004-05, and anyway we should have acquisitions working for us) but I suspect the admin charges will be a lot higher in H2 this time round.

And that's my main worry about reaching the guidance: admin costs need to have increased by only 15% (H2:H1) to halve the PBT, and hence the eps.

In fact, if FY admin exps come in at £4m, T/O needs to be over £7m to reach guidance.

[tenapen] 10/9/2006 09:00

Wel done on the profit Outsider. I took your lead and bought SIN myself and wish i had new money to buy more SIN if only for the large dividend. But i trust that Jon (BF) knows his stuff on TEL and so i am happy to hold until / if news comes that i don't like.
regards All.
kenny.

[outsider] 10/9/2006 08:01

Taken my profits, funds put into what I think is less risky & feel more comfortable holding long term... SIN.

[jonwig] 10/9/2006 07:43

B.F.
Sitting on the fence - that smacks of indecision.

Not at all: they will be a BUY when they meet (close enough) the guidance figures we've been given, but I just don't trust their word on this until I see the evidence.

The first half year was a let-down (whatever spin you choose to put on it) and the company has bee too silent on the wonders of Ed "Cassydora" Smyth.