Valdor Technology Int'l Inc (VTI)

[investor15]

Valdor Technology positions itself for growth in fiber optics components sector

Aug. 27, 2013
by Ian Mclelland

Investors who put their faith in Valdor Technology International's (CVE:VTI) $2 million private placement - which closed last month - have been handsomely rewarded in short order with shares in the fiber optics components specialist already up over 90 per cent from the 10 cent placement price.

The technology company specializes in the design and manufacture of new generation fiber optic connectors, enclosures, splitters, laser pigtails and other optical and opto-electronic components. Fiber optic systems require sophisticated devices in order to function. Valdor makes these components and specializes in harsh environment products, in particular, splitters and connectors.

Investing in small companies can often be a perilous endeavor, but the rewards can also be huge. Valdor, at first glance, may not look like a company with huge potential, but dig deeper into the management team, products and market it is targeting, and one quickly realizes this micro cap company has its sights set on some juicy opportunities for shareholders.

A call with chairman Elston Johnston also quickly gives one the impression that this company places a lot of value and importance on management and its considerable experience within the fiber optics industry.

The company holds several patents on its connector technology in strategic global regions, and there is a clear signal that acquisitions are a priority on the agenda, though not at any cost.

The most recent addition to the management team is fiber optics veteran Raj Kapany, whose experience is highlighted by being the former head of Tyco International's European fiber optics division, and leading a team that funded and oversaw the sale of K2 Optronics to Emcore. "Raj's marketing knowledge and corporate experience will be of great value to our sales and business growth. His M&A experience and high-tech business contacts can help us grow via mergers and acquisitions," says Johnston.

The stock is tightly held. Management and people close to management own well over 50 per cent of the issued shares and this is evident from the market trading activity. With management having a very large position in the public vehicle, “they are putting their money where their mouth is” and are obviously motivated to do what is best for the shareholders.

Fiber optics is an interesting sub-sector of the telecommunications market.

For several years, the world's largest telecom companies have been ploughing capital into expanding upstream and downstream capabilities of their networks to meet growing demand from consumers.

In laymen's terms, there are essentially three stages of this expansion. First was the development of national and international fiber optic networks, connecting countries, cities and towns. Second was the build out of fiber optics to industry and to “your curb". And third, currently underway, is extending fiber “from the curb into your house”. This third phase is no small task, requiring years, if not decades, of investment, and the challenges it can bring are diverse. Reliable, cost effective components are therefore absolutely essential.

Valdor intends on capturing a share of the fibre optic products market relating to this third phase, especially within the telecom sector, which accounts for about 80 per cent of global fibre optic expenditures. This is essentially where Valdor plays, though its range of target markets also includes military, industry, medical and security.

The company’s current niche is launching new technologies that find solutions for its clients, placing a priority on quality products as opposed to sale price. An example of this was highlighted to the market last week, when Valdor announced an initial purchase order from an undisclosed Canadian telecommunications firm. This telecom installed units of one of Valdor's harsh environment products into its fibre network in January. According to Valdor, the product exceeded the telecom company's expectations. Discussions are now underway to sell more of this product, as well as other products, to this telecom.

It is difficult to sell to Canadian telecoms, but once a service or supply company becomes a vendor to one, the other Canadian telecoms typically follow. “I see this as a gateway purchase order for Valdor ultimately doing more business with this specific telecom, but in the bigger picture, for us doing significant business with other Canadian, North American, Central American and South American telecoms," said director and VP of sales and marketing for Valdor, Ron Boyce, who began his career as an executive salesman with a central Canada-based telecom.

Company shares responded positively to the news of this initial purchase order. It can often take some time to have new technologies adopted by industry, hence the significance of Valdor's products being installed into the fibre network of this undisclosed client.

At a share price of 19 cents, the company is valued at about $15 million, and though it does report some sales, it would be difficult to weigh up an investment based on financials alone.

Instead, investors should take a closer look at the company’s management team, business sector, business model and stock structure and decide if this is a horse they want to back.

Based on recent news flow and share performance, it certainly warrants closer inspection.

http://www.proactiveinvestors.com/companies/news/47452/valdor-technology-positions-itself-for-growth-in-fiber-optics-components-sector-47452.html