Neratel

Anybody have any views on the take over of Neratel by STE? Will it go through? Many bought it above the Acquiror's offer price. Again the BB's reign.

(11-02-2012, 09:50 PM)VestedInterest Wrote: Anybody have any views on the take over of Neratel by STE? Will it go through? Many bought it above the Acquiror's offer price. Again the BB's reign.

Offer Price = $0.45. Click on Below 5-Year Price Chart from Yahoo Finance,

   

(11-02-2012, 09:50 PM)VestedInterest Wrote: Anybody have any views on the take over of Neratel by STE? Will it go through? Many bought it above the Acquiror's offer price. Again the BB's reign.

Don't think delisting is the intention.

Key is at the switch option, where ST has proposed to do a higher offer if there is a competing bid, with Eltek pledging to accept ST's new bid. Even if ST does not intend to up its bid, Eltek is also permitted to accept the competing offer (but subjected to competing bid not being less than 47.5c). However, if they accept the competing offer, they need to pay $1.6m as compensation.. I did a quick calculation - based on their 50.5% stake, if a competing bid comes in, the spread of 2.5c (47.5 - 45) will yield around $4m, more than enough to cover the compensation and still allow some decent profit for Eltek.

In other words, Eltek is in its own incentive to accept any other competing bid. And knowing this, I don't think IF there exist a competing bid, the competitor will be too cheapskate to offer between 45c and 47.5c - since Eltek will more than willing to accept already.

For 45c cash offer, with irrevocable undertaking at 50.5%, it already represents a majority of shares.. valuation at 45c is quite decent at around 12x P/E based on its latest FY result and more than 2x P/B (net working capital at around 1.5x current ratio, quite decent too). This means that more or less the deal might go through even if there is no competing bid.

In other words, I think downside risk is little while there is a decent potential for a higher bid.

I have vested interest in NeraTel.

This is one of the rarest takeover stock in which recent shareholders either lose most of their profits or lost money. For the past 8 years, NeraTel has been paying consistent dividends with yields between 8%-10%. This is the prime attraction of NeraTel.

The takeover price of 45cts includes dividends which shareholders will get anyway without the takeover. Excluding dividends, the takeover price is only 39cts.

On a growth basis, NeraTel is not impressive. In fact, the book value has been sliding down since 2003. Its earnings has been quite flat over the years too with earnings per share hovering at around 3cts per share. PE ratio is not impressive at an average of 17 for the past 4 years. However, what impresses me is the operating cashflow. Operating cashflow grew at 15% in 2010, 16% in 2009 and a whooping 80% in 2008. The absolute amount of the operating cashflow is comfortable enough to cover the generous dividends. With such strong consistent cashflow, the very generous dividends are definitely sustainable.

The takeover has killed this dividends play. I was expecting better compensation for the death of my dividend baby.

http://help-your-money.blogspot.com/

I'm vested in Nera Tel since 2003.

It's been one of my best dividend plays over the years - where to find average 12% yield with hardly any company debt?

I feel I am like one of those Indonesian "passengers" who piggy-backed on top of the trains; and now have been shooed-off.

Oh well, it was fun while it lasted; especially for a free-loader like me. Now the new owner wants to keep all the future cash flows to themselves

What to do? If Eltek needs to raise money and sell their baby on the "cheap", it goes to show credit is tight despite all the liquidity sloshing around... Companies flushed with cash will take advantage of companies that are cash strapped.

Need to find another train to ride. Free-loaders like me have to "work" for our free rides too!

i didnt get invested because i find it difficult to think a business based on order books as the nature of infocomm can pay that consistently. i need to re-evaluate this biasness.

do let us know if you guys find the next Neratel

Reading the Implementation Agreement, it sounds like STE is wary of a counter offer. They probably think that the offer price a tad too low but just want to try their luck. I think if minority shareholders hold out for a higher offer, STE will give in but at a not too much higher price. Neratel is a cash flow company that gives out good dividends, at times giving more than their earnings. Lim Tan is one of those brokerages that like this company and believes that it has huge potential in the areas of its 'point of sale' solutions (flahs pay card systems, credit card payment systems, etc). If STE succeeds, it would be a good catch and synergistic to the business of ST Electronics. They should want it badly as the other business of Neratel include microwave solutions, satellites, wireless broadband, broadcasting, infocomm, etc. I wonder if the problems in Europe are biting into Eltek's cash flow that they are willing to sell Neratel at this 'lowish' price.

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Reading the Implementation Agreement, it sounds like STE is wary of a counter offer. They probably think that the offer price a tad too low but just want to try their luck. I think if minority shareholders hold out for a higher offer, STE will give in but at a not too much higher price. Neratel is a cash flow company that gives out good dividends, at times giving more than their earnings. Lim Tan is one of those brokerages that like this company and believes that it has huge potential in the areas of its 'point of sale' solutions (flahs pay card systems, credit card payment systems, etc). If STE succeeds, it would be a good catch and synergistic to the business of ST Electronics. They should want it badly as the other business of Neratel include microwave solutions, satellites, wireless broadband, broadcasting, infocomm, etc. I wonder if the problems in Europe are biting into Eltek's cash flow that they are willing to sell Neratel at this 'lowish' price.

Having vested interest in NeraTel, I wrote an article on my blog about it. Hope any potential acquirer will read it.

Loss of my favourite dividend child - Nera Telecommunications
I like to own companies that pay good dividends. I view them as my children. These children pay me annual allowance for my living expenses.

The best children are those with growing income and pay me a reasonable percentage of their income as dividends. This percentage is not so high until their own growth is stunted because they are not reinvesting enough of their profits back into the business. This percentage is not so low until I have problems paying for my living expenses. No parents like children who are stingy with their allowance despite earning fat salaries. A fast-growing income means that the children can afford to pay me rising, comfortable allowance without holding back their own wealth accumulation or even putting themselves into hardship. These are the best sort of companies to buy for dividends. They are very hard to find but if you can find them, they will not only deliver consistent dividends but good capital gains as well.

I do not like children who pay me generous allowance when times are good and ask for the money back (and more) from Papa when bad times hit. These children share a common name. Not all of them behaved this way but quite a number of them did in the credit crisis of 2008. The name of these children is REIT. I forgived them because the law stipulates that they have to pay at least 90% of their income as dividends which means they may not have enough internal cash to put back into the business. It is not their fault but this defining characteristic means the sustainability of dividends paid by REITs is questionable. I will consider buying REITs on a depressed basis when bad times hit and after they have raised money from other people.

One of my favourite child is Nera Telecommunications. Although this child does not enjoy growing profits, it has been able to pay out very generous dividends because of its strong, consistent cashflow. See the table below to judge how filial this child has been to me for the past 8 years.

Cannot publish table here. Please go to the link below
http://help-your-money.blogspot.com/2012...child.html

For the past 8 years, Nera Telecommunications have been paying dividends with yields ranging from 7.65% to 47.37%. On a growth basis, NeraTel is not impressive. In fact, the book value has been sliding down since 2003. Its earnings has been quite flat over the years too with earnings per share hovering at around 3cts per share. PE ratio is not impressive at an average of 17 for the past 4 years. So, one way to interpret this is that NeraTel has been sacrificing growth to pay generous dividends to its shareholders. So shareholder-friendly. Such a filial child.

A good question to ask at this point is whether the dividends are sustainable. Since dividends are paid from hard cash and not accounting profits, it is better to look to the cashflow statement rather than the income statement for the answer. NeraTel's operating cashflow grew 15% in 2010, 16% in 2009 and a whooping 80% in 2008. The absolute amount of the operating cashflow is comfortable enough to cover the generous dividends. There must be something about the business being a cash gusher that enables it to have a consistent track record of paying generous dividends for 8 years throughout good and bad times.

On 10 Feb 2012, ST Electronics made an announcement to buy my favorite child away. The price offered is $0.45 cents per share. The actual price paid by the Acquiror is only $0.39 excluding 6cts of dividends that will be paid by NeraTel.

Is the offered price $0.39 too cheap? If the worth of a company is the sum of its future cashflows, then NeraTel is surely worth more than $0.39 based on its strong, consistent, stable dividends in the past decade. In fact, the dividends that NeraTel paid in the past 7 years alone already exceeds $0.39 which is the offered price today. ( I hope any potential acquirer will take note of this point) Now, ST Electronics wants to pay only $0.39 to swallow up all the future dividends for decades to come.

It is very hard for me to find a better child than NeraTel. Nera Telecom has been a good child to many minority shareholders. Please compensate us fairly for the loss of such a fine son.

Disclosure: This post has been written with vested interest.

http://help-your-money.blogspot.com/2012...child.html

(12-02-2012, 11:09 AM)Jared Seah Wrote: .
What to do? If Eltek needs to raise money and sell their baby on the "cheap", it goes to show credit is tight despite all the liquidity sloshing around... Companies flushed with cash will take advantage of companies that are cash strapped.
.

Looks like you may be right on Eltek being cash strapped. Extracts from Eltek's PR,

The net proceeds from the Transaction will strengthen Eltek's financial platform to further develop its strong position within its core business segments. NOK 100 million of the net proceeds will, in accordance with the loan agreement, be used as an extraordinary repayment on existing term loan. The proposed Transaction will reduce Eltek's reported net debt by the difference between net proceeds and net cash in NeraTel. Net cash in NeraTel amounted to NOK 230 million per 30 September 2011.

Also, their Balance Sheet for FY10 shows NOK600Mil Debts vs NOK6.8Mil Cash. Exchange rate is ~ S$1 = NOK 4.6

Additional Info
Found Eltek's 9mth FY11 financials.
Looks healthier, with Profits in FY11 (9mths) vs Losses in FY10. Debts NOK 1037Mil vs Cash NOK 518Mil.