Garcea's 2013 Research Report on NCI
COMPANY PROFILE
NTG Clarity provides telecom, network, IT, and infrastructure solutions to service providers, and medium and large enterprises. The Company’s core product is NTS — an on- premise Operations Support System/Business Support System solution that is targeted at large utility organizations, telecom service providers, and the oil and resource industry. The Company generates revenue from three business segments: software development, professional services, and training services. NTG was founded in 1992, currently has ~200 employees and consultants, and is headquartered in Markham, Ontario, Canada.
Rating: STRONG BUY
Target Price: $1.00
Market Capitalization: $15.1M
Risk Profile: SPECULATIVE
NTG – AN EMERGING MARKET OSS/BSS PLAY
INVESTMENT THESIS: NTG Clarity Networks (“NTG” or “the Company”) provides telecom, network, IT, and infrastructure solutions to communication service providers (“CSP”), and medium and large enterprises. The Company’s core product is NTS – an on-premise Operations Support System/Business Support System (“OSS/BSS”) solution. NTG provides investors an opportunity to participate in the expanding OSS/BSS industry with growth driven by increased adoption of convergent billing systems and a growing telecom sector. In the near term, emerging market CSPs will need to significantly invest in their network infrastructure, transitioning from legacy systems to an open and flexible architecture in order to lower CSP churn rates, increase ARPU, and improve the customer experience.
FINANCIAL REVIEW: NTG has been profitable in 27 of the last 33 quarters, recently reporting Q313 revenue of $3.77M, EBITDA of $1.12M, and EPS of $0.02. The Company’s cost control initiatives have led to healthy margins. We look for the Company to cross the $10M+ annual revenue milestone by year-end.
VALUATION: NTG currently trades at a 2014E EV/Sales multiple of 1.1x, and EV/EBITDA multiple of 3.8x (~5x maintenance revenue), versus industry comparables of 1.7x and 7.9x, respectively.
UPCOMING CATALYSTS NEAR TERM: Contract wins leading to a growing customer network and revenues. LONG TERM: Diversified geographical footprint and product portfolio, as well as inorganic growth.
We are initiating coverage on NTG with a STRONG BUY recommendation and 12-month target price of $1.00/share, implying a 133% upside from the current price. Given the risks associated with client concentration, geographical market instability, and sales lumpiness, we rate the risk profile as SPECULATIVE.
***
The price at the time of this report was .43
GLTA & JMO
