Fundamental View

Talkpool was founded in the early 2000’s by Magnus Sparrholm and is now publicly listed on Nasdaq First North since 24 May 2016. The Company’s head office is in Chur, Switzerland, and the total number of employees is approximately 1,250, including the acquisition of LCC.

From the outset, Talkpool has been an independent specialist that builds, maintains and improves telecom network services (TNS) worldwide. The Company is currently operating in various markets including Europe, Africa, the Caribbean, the Middle East and Latin America. Talkpool’s strategy is to have a global presence supported by local hubs that provide local knowledge and expertise. Through cherry-picked acquisitions, a Global Partnership Platform and continued development of IoT-solutions, Talkpool will be able to reach niche areas and thus generate higher margins than the general TNS-market.

Last updated: 2018-09-05 Source: Redeye

Talkpool’s two business areas are TNS and IoT. TNS generally involves implementation and operation & maintenance (O&M) of telecommunications networks for operators and vendors. Within O&M, framework agreements with customers are often long-term, usually about three years, with automatic extensions at the end of the contract. The framework agreements generate recurring revenue, at a historical rate of 40% of total revenue.

The second business area is IoT, where Talkpool’s main focus is on the Low-Power Wide-Area Network (LPWAN) market. LPWAN is an energy efficient, low data rate IoT-solution that interacts with devices that do not need to continuously send or receive data, such as machine-to-machine (M2M) communications.

Last updated: 2018-09-05 Source: Redeye

Both of the markets which Talkpool is active within are expected to show strong growth going forward. The main business segment TNS is expected to grow from USD 12 bn in 2017 to 23 bn by 2022, which implies a CAGR of 14%. The growth of the TNS-market is primarily driven by two factors: the growth of data consumption and operators’ needs to outsource network maintenance operations.  

The other business segment, IoT, is expected to grow at a CAGR of 30 % until 2023. At this moment, Sweden is investing heavily to become the country with the highest implementation rate of IoT in both the public and industrial sectors. We believe that the Scandinavian IoT-market is standing on the edge of nationwide implementation of IoT-networks. If Tele2 implements a nationwide LoRa network, we find it likely that Talkpool will be the one building it. We find that an established IoT-network will be crucial to see a serious increase in its IoT sales. 

Last updated: 2018-09-05 Source: Redeye

  • Profitable core business paving the way: TNS has historically provided very stable sales, with recurring revenue of 40-50%. Going forward, we believe that TNS will grow by 5% annually to 2025.
  • The exponential growth of IoT: the IoT market is growing at an impressive rate. The Swedish market should be ready for a nationwide IoT implementation and we believe that Talkpool will benefit from this growing market.
  • Value creation through M&A: Talkpool has a good track record of M&A activity. We believe that Talkpool will continue to acquire companies in areas where price pressure is not as intense as in TNS.

Profitable core business paving the way. Talkpool has been active in Telecom Network Services (TNS) since early 2000 and has now an established global presence. This business area has historically provided a very stable income, with a recurring revenue at 40- 50% of sales from Operation and Maintenance. Talkpool has an impressive client portfolio, consisting of the most prominent operators and vendors, like Huawei and Telenor. Lately, the company has shown a strong growth potential in TNS with the award of two major turnkey contracts with Digicel (USD 7m annually), and Deutsche Telecom (potential of reaching EUR 5m annually). In addition, we believe that the global framework agreement with Digicel will increase Talkpool’s sales substantially. The stable revenue from TNS has enabled Talkpool to finance its next big business area, Internet of Things (IoT).

Strong position within the exponentially growing IoT-market. According to Ericsson, the entire IoT-market is expected to grow by a CAGR of 30% until 2023. We believe that Talkpool is well positioned to grow with the IoT-market and that its current sales within the segment amount to approximately EUR 1.5m. Our interpretation is that the Swedish market is getting closer to a nationwide implementation as several telecommunication companies currently are increasing their efforts in building IoT-networks. We also believe that Talkpool will use its product portfolio to launch its IoT-products in the Middle East while using LCC’s IoT-solutions in areas like Haiti. We further expect its IoT-sales to contribute with gross margins in excess of 45% and thereby bolstering the company’s profitability.

Value creation through M&A. Talkpool acquired Camouflage in 2016 and Technetix in early 2017. Ever since Talkpool acquired the companies, they have shown impressive revenue and profit growth. In Q2 2017, Camouflage increased its profit more than six-fold, as well as they doubled their income, while Technetix doubled their profit. The latest acquisition of LCC Pakistan will double the revenue and improve the overall margins, as LCC had revenues of EUR 9.9m and an EBITDA margin of 15% (EUR 1.5m) in 2016. Now, thanks to the acquisition of LCC, Talkpool will be exposed to the fastest-growing TNS-market. We assume that Talkpool will continue to cherry-pick its acquisitions in niche areas where price pressure is not as intense as in TNS, and also acquire companies with better margins than Talkpool. However, we have not included any additional M&A activity in our valuation.

Bear points

  • Price pressure from operators

Talkpool’s current client portfolio consists of two customers that account for 50% of revenue. If one of them decided to choose another TNS-provider, there would be a huge negative impact on Talkpool’s business. Talkpool has felt price pressure, which we believe to average 2-4% annually. We argue that it is highly possible that price pressure will continue and that it will make it a challenge for Talkpool to achieve its financial target of an EBIT margin of 8% in the TNS-segment. 

  • Slow ramp-up in IoT

The development of the IoT-market has taken longer than the market initially thought. Currently, most IoT solutions are highly customized which is a threshold for continued rapid growth. We believe that the IoT-market growth during the period of 2018-2019 will suffer if the market does not adopt a technology standard.

  • Impairments are part of the business

We believe that 60% of Talkpool’s revenues come from implementations of a market segment notorious for impairment losses. If the company does not comply with the requirements set out in contractual terms and conditions higher costs related to the project could result in impairments. This could result in heavy losses and also impact its development.

Last updated: 2018-10-02 Source: Redeye