ETC - Telco/Mobile Technology

[Footsie]

This stock appears remarkably cheap.
Currently already in profit they have a forecast NPAT of $48m for Fy09. confirmed recently.
up from $11m in Fy08 p/e of 2

Coy has no debt and its main business is government security contracts in malaysia.
emtcorp.com.au for more info
Also recent investor preso available on stockness

Stock has been trending down from a high of around 50c in Sept 08 to its current 21c

Phaedrus can you offer an unemotional, objective TA view.
It has recently had a massive jump in OBV, my main question is that is it too early to be buying, as an uptrend hasn't been established yet. Although one could buy now and use the recent low (19c) as a stop.
I like this coy a lot so want an unbaised view.

Thanks
FTSE

[The Big Ease]

far out.
very interesting and ambitious.
quadrupling their NPAT from one half to the other willbe met with scepticism in any market, let alone the current conditions.

at the current run rate, they are trading at 4-5 times full year earnings.
the presentation didnt have anything to support their claims of revenue, contract and regional diversification, though they did outline their pipeline of works. it would have been good if they presented that in some charts by revenue.

[Phaedrus]

Is it too early to be buying as an uptrend hasn't been established yet. Although one could buy now and use the recent low (19c) as a stop.

The attached chart shows 6 indicators that have worked well in the past. All have given recent BUY signals. While it is true that there is no confirmed uptrend yet, these 6 signals give a very strong buying indication, so I do not believe that it is too soon to act. (It would take a Close of above 24.5 cents to confirm the new uptrend). Your proposed use of 19 cents as a stoploss makes good sense - though of course a lot of other people will be using it as well!

It really WAS too early to buy on the trendline break, though. Most everybody would have ignored that "buy" signal for 3 reasons :-
(1) The trendline was broken by the price merely crabbing sideways, rather than rising.
(2) The trendline break was made on miniscule volume.
(3) There was NO confirmation from any other indicators.

Technically, ETC looks good right now. Why do you like this company, Footsie?

[Footsie]

Phaedrus
I cant see that chart for some reason. Can you try again please?


FA reasons to buy
1) Coy has no debt
2) Mgmt have proven they can grow NPAT over the past 12 months
3) Despite being in Asia, govt contracts are low risk. ETC has worked well with the malaysian govt in the past - so no reason to doubt this new contract wont be just as lucrative.
4) Price has been butchered due to bear market and large seller so currently on a fwd p/e of 2x. V cheap by anyone's standards.
5) Contracts are high margin as its really the patent that has the value. Also contracts are long-term hence revenue rolls fwd
6) Coy is tendering for new Contracts so potential to grow further
7) Coy has been able to raise funds from shareholders over the past year (at much higher prices) to grow the business. So the core shareholding obviously supports the future direction.

Risks
1) delay in start of Chinese/malay contact and therefore miss 48m NPAT target
2) Seller pushes the price to new lows, but eventually they will run out of Ammo and if the story keeps developing then this is largely mitigated
3) FX risk. Earnings are in USD and Malaysian Ringit.
4) additional working capital requirement in the next 3 months which means they might require so debt funding.

[The Big Ease]

footsie, my understanding is 48m NPAT for year ending July 2009
so they would already know if they are going to hit that mark with a great degree of confidence.

so why would QIC be selling so close to an important milestone. they continue to hold 5%, but why would they sell down?

i havent taken a look into their books yet, but why would they need to resort to debt is they were profitable last half, have very high margins and will book 48m profit for the full year? that seems strange to me. unless they havent received the money yet?! hmmm

i have read a few announcements and some of the numbers are huge ie 200m over 5 years with china etc.

its got me interested, but it doesnt make sense.

[Footsie]

ta

Big ease
1) 09 NPAT yes I know its only 3 months to go
2) Why is QIC selling. I've been told a new fund manager has come in and is purging the entire QIC p/f. Who knows the real reason? But dont think QIC are experts. These so called "sophisticated investors" underperform the market year in year out.
3) they may require some working capital funding from the bank before the contact cash comes in the door. Wont be much though I Dont think.

[Phaedrus]

There is something strange going on, Footsie. It all depends on the browser you are using! The chart is there with IE and Firefox, but with Opera, you need to be logged on to see it! Are you using Opera? Google Chrome is not working either. Vot gifs?

[I cleared my Internet cache and everything returned to normal. ??????
I suggest you do the same!]

[Jay]

There is something strange going on, Footsie. It all depends on the browser you are using! The chart is there with IE and Firefox, but with Opera, you need to be logged on to see it! Are you using Opera? Google Chrome is not working either. Vot gifs?

[I cleared my Internet cache and everything returned to normal. ??????
I suggest you do the same!]

Can't see it either and I am on IE (6!!) at work - could be something funny there (usually can see them though) - hey I am about to finish now and go home anyway!

[The Big Ease]

firefox and i can see it

thanks footsie.

btw, you work in the equities business right? do you have any discl. to make regarding this stock? no offence intended

[steve fleming]

I've looked at this company very closely over the last couple of weeks and still can't work out if it is amazingly undervalued or just plain dodgy.

A couple of things concern me:

1.Why would ETC lend $5.7m to their Chinese project/customer in December (when ETC was running short of cash)?

2.Neither versions of the CF statement released for HY09 reconcile to what actually happened in HYO9 (in terms of cash raised/ acquistions made).

3.How is it that operating costs ($2.5m for HY09) really can be so low for a business the size of Nexbis?