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NeraTel: A voluminous day of fear.

Monday, July 22, 2013

There is lots of fear in the air for some people trading the stock of NeraTel today. I won't be surprised if some people lost money as well. Why? A long black candle was formed on the back of relatively high volume. There must have been some panic selling as share price touched a low of 74.5c before closing at 76.5c.

However, this could be good news for some. Who? For people who have been waiting to buy into NeraTel because of its strong fundamentals and attractive dividend, of course.

The question on their minds might be whether it is the best time to buy now?


Well, if we remove the word "best" from the question, then, it becomes easier to find an answer. Linked to this, ask what is our motivation for investing in NeraTel.

My primary motivation for investing in NeraTel is for income. It was not to trade the stock. However, with the rapid and significant rise in the share price, I turned partial trader by reducing my long position in the stock last week.

As my primary motivation for investing in NeraTel is unchanged, the dramatic pull back in share price is a boon for me as I bought back what I sold recently. This means that the planned passive income from NeraTel's dividends in my portfolio is now restored.

Of course, I received a nice little bonus from trading around the investment as well. Quite happy to get some pocket money from Mr. Market, for sure.

Next question, will I increase the size of my long position in NeraTel at current prices?

Well, I think it is now common knowledge what NeraTel's full potential is. Apart from impressive growth potential, it is also a net cash company with a recurring income base. So, it is a stock anyone investing for income and growth would be attracted to. For anyone who is not in the know, I have provided links at the end of this blog for further reading.


Technically, a weak immediate support is at 76c. This is followed by the rising 20dMA which approximates 73c today. Failure of the support provided by the rising 20dMA to hold means a possible decline in share price to 66c.

Fundamentally, at 66c, we are looking at a PER of less than 10x once more and an estimated dividend yield of 6.06%. So, expectation for strong support at that price is not premised only on the technical picture but also on more attractive numbers.

I will be adding to my long position if supports are tested.

Related posts:
1. NeraTel: Trading around an investment.
2. NeraTel: A very good investment.

14 comments:

AK71 said...

Samuel Ang (SA), the President, and CEO of Nera Tel has sold out of his direct stake (of 1.04mln shares) in Nera Tel at 82.5 cents on 17/18 July’13.

After the sale, he is left with a deemed interest of 25,000 shares.

SA’s move is significant as his last purchase was 60,000 shares at 40 cents a share in 2009.

SA has been heading Nera Tel since its listing in 1999.

Investors who has been invested in Nera Tel since its IPO has received about 55 cents in dividends (normal + special). And coupled with the stock’s strong share price appreciation, it has been a rewarding investment.

Notwithstanding the company’s still robust prospects, we are changing our recommendation to “Take Profit”, following SA’s latest complete disposal of his direct stake in the company.

Lim & Tan Securities Pte Ltd

Capricon said...

AK
Just prior to last week, we saw several analyst reports from dmg, lim & tan on the positive ness of the company, then follow by a CEO interview in The Edge previous weekend, all seem so positive and timely. Then CEO sold his stake last week,, is this proper ?

seefei said...

Looking at div of 4 cts and the robust business, the house call from Lim and Tan is timely. Time to get ready and take advantage of any further price dip in Neratel.

Musicwhiz said...

The question to ask should be - what has been priced in? Investors should reverse engineer the share price to find out if growth prospects are already in the price. This lets you know how much of a disappointment you're in for should things not come to pass.

What is the price of optimism? I think I will let the investors in NeraTel answer that one.

AK71 said...

Hi Capricorn,

Well, there is certainly nothing illegal about it. As to whether it is proper, that is something I do not have an answer to although I have no doubt that some will have strong opinions on this.

Personally, I am only concerned with my motivations for being invested and my methods in doing so. If they align nicely, I am happy enough. :)

AK71 said...

Hi seefei,

Indeed so. I would be quite happy to accumulate more stock of NeraTel's if its price should dip towards longer term supports. :)

AK71 said...

Hi MW,

I try not to be too optimistic. I always try to be pragmatic. So, your advice is very close to my heart. :)

With 2012's EPS of 5c, at 80c a share, we are looking at a PER of 16x. Certainly, it does not look cheap.

However, in the last 3 years, EPS has been growing at 1c a year. So, assuming an EPS of 6c for 2013, 80c a share means a PER of 13.3x.

So, to me, 80c a share values NeraTel fairly. It isn't cheap but neither is it expensive.

Of course, we remember what Warren Buffett said about owning a good company at a fair price being better than owning a fair company at a good price. I hope it is the case here as well.

Many are optimistic that NeraTel could deliver higher EPS growth in 2013 and 2014 with the recent developments and, also, its plans in the pipeline. Optimists expect an EPS growth of 2c in the current year. If they should be right, at 80c, PER becomes 11.4x.

Of course, value investors will want to wait for a significant margin of safety before buying in. a 50% margin of safety means an entry price of 40c. Is this likely? Pessimists might think so but I am a pragmatist. ;p

Cory said...

Doesn't make sense. Why is the CEO selling when the future is going to be BRIGHTER ! Is he going away ?

AK71 said...

Hi Cory,

Maybe, he is buying a few condominiums in Iskandar? ;)

Anyway, only he has the answer.

AK71 said...

Interim dividend of 2c/share declared.

Payable on 30 August 2013.

See:
Analyst briefing, 7 August 2013.

AK71 said...

Selldown Unwarranted As Share Sale Misconstrued.

NeraTel’s CEO, Mr Samuel Ang recently sold off all shares under his name and the market reacted extremely negatively to the news.

On the contrary, our checks show Mr Ang effectively increase stakes as the parent PE fund Northstar allowed him to hold more stakes of the company in order to incentivise and retain the CEO.

Northstar, the current parent of NeraTel, is an Indonesian USD1.2bn private equity firm with a long solid track record, partnering with institutional giants such as GIC and TPG.

Recent deals include the Indonesian national bank TPN’s exit, where sources confirmed that Northstar stood to gain a 7x return.

Similarly, Northstar also set a target for NeraTel to achieve, doubling profits in three years’ time.

As such, we opine that NeraTel’s future is a bright one. Reiterate BUY with a higher TP of SGD0.93 based on 11.4x blended FY13/14 PE (+1 S.D 5-year historical forward P/E).

(OSK-DMG)

AK71 said...

We are reinstating a BUY on Nera Tel as we understand that the company’s CEO Samuel Ang (SA) who sold 1,040,000 shares on 17/18 July’13 at 82.5 cents a share (raising proceeds of $857,419)
will be re-investing a bigger amount to take up a minority stake in the parent company of Asia
Systems (AS) who owns 53.38% of Nera Tel.

This is done so as to align SA’s interest together with AS and will enable him to effectively have a bigger effective stake in the company.

With the stock having dropped about 8% since our “take profit”
recommendation and now yielding 5.3% and with its forward PE of 11x against growth of 30%, we
are thus re-instating a BUY on the stock.

- Lim & Tan, 5 Aug 2013.

jalan Jalan said...

Hello AK,

What is your opinion on the high payout ratio of Neratel?

From SGX website, the payout ratio for the past 4 years is:

107.19
74.63
92.526
133.814

AK71 said...

Hi jalan jalan,

I think of NeraTel as an investment for income very much like how I think of SPH. Income first and if there should be growth, I will think of it as a bonus.

NeraTel doesn't retain much to fund growth because it has resources and it is likely to use leverage more in future to do so. Leverage isn't a bad thing if it could give ROE a boost. We shall see.

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