Research note


Talkpool: Impressive gross margin and increasing profits

Earlier this morning Talkpool published their report for the third quarter of 2017. Sales were almost spot-on our predictions adjusted for the delay in Mauritius. Impressive gross margin of 23% and a positive EBIT of EUR 0.05m. The framework agreements with Digicel and Deutsche Telekom seems to be ramping up faster than what we have expected. For these reasons, we will increase expected sales going forward and raise Base-case with a few SEK.

Net sales during the third quarter amounted to EUR 3.36m which implies a growth of 18% Y/Y. The revenue was mainly driven by the new agreement with Digicel regarding O&M of their network in Haiti and the strong growth of the acquired companies Technetix and Camouflage. The framework agreement together with Digicel seems to be in ramp up phase as sales only amounted EUR 1.36m in Haiti, a 4% increase compared to Q2’17. We are going to raise our sales estimates for 2018 as we believe the concerns regarding the framework agreement with Deutsche Telekom seems to be exaggerated and that the contract with Digicel will generate annual income of over the USD 7m in the coming years.

On the cost perspective, Talkpool reported operating costs of EUR -3.3m, which was 11% lower than our estimates. Thanks to the higher gross margin and lower costs, Talkpool delivered an EBIT of EUR 0.05m, compared to our estimate of EUR -0,05m. The focus regarding cutting SG&A expenses seems to be paying off as the Company manage to reduce SG&A with 9.5% compared to Q2'17. The biggest difference was financial net which amounted to EUR 0.06m where we expected a loss of EUR -0.15m, due to the ongoing activities regarding acquisition of LCC.

Talkpool continues to establish a stronger position within the area of Internet of Things as they recently acquired 30% of the Internet of Things company, Talkpool AB. We also believe that the focus on the three verticals smart building, smart cities and smart industry will strengthen their position substantially. When reaching out to the Swedish operators, it seems like they are still under testing phase regarding implementation of an IoT-network.

Altogether, gross profit was stronger than our expectation while SG&A were lower than our estimates. Earlier we discussed that we would look into our Base-case thanks to the acquisition of 30% of the Internet of Things company Talkpool AB. Where Talkpool AG owns 56% of the shares in Talkpool AB. We will shortly publish a research report where we summarize our thoughts and raise Base-case with a few SEK because of:

  • Acquisition of the Internet of Things company Talkpool AB
  • The strong development of gross margin in the core business
  • The framework agreements with Digicel and Deutsche Telekom seems to be ramping up faster than expected

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