NeraTel: 2Q2015 and an interim DPS of 2.5c.

In my last blog post on NeraTel, I cautioned against judging the business based on quarterly results because annualising any one quarter's results would not give an accurate picture of business performance. I made the remark based on what I remember the CEO said in an interview:

"In an interview that NeraTel's CEO, Samuel Ang, gave to The EDGE, some time ago, he said that it is important to remember that revenue recognition could be lumpy because NeraTel is generally a project based business." 

NeraTel has announced an interim dividend per share (DPS) of 2.5c on the back of rather encouraging results for 2Q 2015, quite different from the rather gloomy numbers in the preceding quarter.

Revenue for 1H2015 ($90.5m) improved some 7.2% over 1H2014 ($84.4m).

Although the numbers are encouraging, it is only fair to say that NeraTel is still faced with challenges which are forcing them to accept lower margins.

Note that gross profit margin reduced from 35.1% to 33.1%, although it is still above 30% which is pretty good for any business. At the end of the day, NeraTel is still a profitable business although profit after tax reduced 13.1% for the first 6 months of the year, year on year.

NeraTel has plenty of cash which is one of the reasons why it is attractive to income investors. This is also the reason why it is able to pay out 2.5c in interim DPS although its 1H2015 EPS is 1.93c, Part of the dividend payout is, therefore, a return of capital.

Many moons ago, I said that anyone who thought a yearly DPS of 6c for NeraTel was sustainable must have been on drugs. I said that a yearly DPS of 4c was more realistic.

To be quite prudent, however, for anyone who is interested in investing in NeraTel for income today, a DPS assumption of 3c or 3.5c per annum could be a better idea. In such an instance, based on a closing price of 67c a share, we are looking at a dividend yield of 4.48% to 5.22%.

NeraTel, with plenty of cash, low debt and a good track record, remains, for me, a relatively good investment for income. I am quite happy to be paid while I wait. Yes, my bet is on Mr. Samuel Ang bringing his years of experience to bear and delivering better results eventually.


Related posts:
1. NeraTel: Is 1Q2015 a sign of things to come?
2. NeraTel: What is a sustainable dividend payout?