Vislink: Profitable Growth From Expansion

The interim results demonstrate the effectiveness of management’s long-term strategy, which is delivering profitable growth from expansion in the Surveillance segment, penetration in geographies such as the Middle East, and the introduction of new multi-mode broadcast products. We adjust our estimates to reflect the recent acquisition of Amplifier Technology, which extends the group’s presence in the defence and surveillance sectors, and now see fair value at 52p, rather than 41p previously.

Improvement in order book underpins H113
Order intake during the period was up 32% year-on-year, underpinning a substantial quarter-on-quarter rise in revenues during Q2, which resulted in H113 revenues growing by 2% year-on-year to £28.0m. A 1.2pp improvement in gross margin and tight control of costs delivered a 48% jump in adjusted pre-tax profit to £2.2m. The balance sheet remained strong, with £7.2m net cash (£0.9m lower than December 2012) at the period end. The H113 results highlight the increasing importance of the Surveillance segment (16% H113 revenues) and activities outside the traditional core markets such as the Middle East. Management reiterated its target of annualised revenues of £80m generating £8m adjusted EBIT by FY14, with the balance of £10m revenues and £1.8m profit being realised from further acquisitions.

Progress toward strategic targets
The acquisition of Amplifier Technology for £2m cash (plus a contingent £2m) is part of management’s strategy to extend the product offer for the Security division and to build scale. Our model assumes the transaction will be earnings neutral in FY13 and contributes an additional £1.1m pre-tax profit in FY14. In addition, Vislink has announced a strategic partnership with C-COM Satellite Systems, which is expected to help Vislink extend its presence in regions such as Russia and in industry verticals such as oil and gas, mining and disaster recovery. The group continues to introduce new products that complement its core broadcast offer such as the NewStream multi-mode mobile broadcast transmission system.

Valuation: Discount to peers and NAV
Vislink shares continue to trade at a discount to its peers in the broadcast and satellite communications sector. If we apply the average prospective sample P/E multiple (16.6x) to EPS adjusted for a full year’s contribution from Amplifier Technology, with a 15% discount for a smaller market cap company, we see fair value at 52p.

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