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I have been a NeraTel shareholder for many years. In the middle of 2013, I significantly increased my investment in the company. At that time, I had this to say:
This is a net cash company and has a record of paying consistent and meaningful dividends. Its last payout was 4c a share with an EPS of 5c. At today's closing price of 61c, we are looking at a dividend yield of 6.56% which is very decent. With its recurring revenue streams, dividends are probably sustainable.
I started accumulating at 40.5c a share and the bulk of my investment are at 60c to 63c a share. Yielding about 5% annually, over the years, my investment in NeraTel paid me thousands of dollars in dividends. As an investment for income, it was pretty good.
Its share price went up and its share price went down. I did a few trades but I mostly held on tight to my investment for income. Movement in the share price didn't bother me.
Recently, I received many messages from readers, most of them asking me if they should sell their investment in NeraTel and some did as its share price rose from a low. I said I might consider partially divesting if its share price were to go higher, all else remaining equal.
Well, the share price did move higher and a good reason to reduce exposure to the stock surfaced:
Ingenico’s offer of S$88 million represents 35% of Nera’s market capitalization of S$251.5 million as at close of trading on 19 May 2016. Based on Nera’s FY2015 financials, its payment solutions business accounted for approximately 26% of the Company’s total revenue of S$181.5 million and approximately 21% of its total earnings of S$13.4 million.
As an investor for income, I was most interested in NeraTel's payment solutions business for its more predictable income generating ability. The other two business segments with their more lumpy revenue are not as comforting.
While I understand that a large part of the gains from selling the payment solutions business would be distributed to shareholders, how much would it be on a per share basis?
Although a back of the envelope calculation suggests that it could be as much as 17c or so a share, give or take a cent, it could be a case of killing the goose the lays the golden eggs.
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With this in mind, I decided to reduce my exposure to NeraTel significantly, booking a nice capital gain in the process.
With more than decent capital gains and dividends received over the years, the rest of my much reduced investment in NeraTel is probably free of cost.
It would be interesting to see how the management unlock or create value for shareholders in future.
See: http://infopub.sgx.com/FileOpen/20160520_NTL_Media%20Release_Disposal_PS.ashx?App=Announcement&FileID=405815
Added on 16 Jan 17:
NeraTel: Aggressive selling as 3Q disappoints.
"As I invest primarily for income, I am mainly concerned whether NeraTel is still able to pay a meaningful dividend. I am also concerned if the balance sheet is still strong, naturally....NeraTel's balance sheet is still strong. Operating cash flow has also remained positive."
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