TALK

TalkPool

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  1,350, 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

 

The aim is to use the cash generated by the TNS business area to develop in-house solutions and skills in the area of Internet of Things.

Last updated: 2017-11-13 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: 2017-11-13 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: 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 21 % until 2022, from 16 bn to 29 bn devices. 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 a nationwide implementation of IoT-networks. If Tele2 implements a nationwide LoRa network it is likely that Talkpool will build it. Furthermore, it is when the IoT-network has been rolled out when we see a serious increase in sales within IoT.

Last updated: 2017-11-13 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 with 5% annually to 2025.
  • The exponential growth of IoT: the market of IoT is growing at an impressive rate. The Swedish market of IoT is ready for an nationwide implementation of IoT and that 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 now has an established global presence. This business area has historically provided very stable revenue, with recurring revenue at 40-50% from Operation and Maintenance. Talkpool has an impressive client portfolio, consisting of the biggest operators and vendors, like Huawei and Telenor. Lately, the Company has shown 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, the global framework agreement with Digicel is going to increase Talkpool’s sales substantially. The stable revenue from TNS has enabled Talkpool to finance its next big business area, Internet of Things (IoT).

The exponential growth of IoT

According to Ericsson, the entire IoT-market is expected to grow by 21% CAGR by 2022, from 16 bn to 29 bn devices. The total market value of IoT in which Talkpool is active is estimated at EUR 4.2bn by 2022. Currently, including the acquisition of LCC Pakistan, Talkpool has IoT-sales of EUR 1m. We believe that Talkpool will use its product portfolio to launch its IoT-products in the Middle East while using LCC IoT-solutions in areas like Haiti. We also think th EBIT margin of 20% over the long term.

Value creation through M&As

Talkpool acquired Camouflage in 2016 and Technetix in early 2017. Since Talkpool acquired these companies they have shown impressive growth, both in revenue and profit. In Q2 17 Camouflage increased its profit more than six-fold and doubled revenue, while Technetix doubled its profit. The latest acquisition of LCC Pakistan will double 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 acquire companies with better margins than Talkpool.

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 huge negative impact on Talkpool’s business. Talkpool has felt price drop, which we believe average 2-4% annually. We thus believe that it is highly possible that price pressure will continue. This 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

As we see it, the IoT-market is ramping up, in line with Ericsson’s Mobility Report. However, the development of the IoT-market has taken longer than the market initially thought. Talkpool also stated in its latest interim report, Q2 2017, that the IoT-market is not developing as they had expected. At present, most IoT-solutions are highly customised which is a threshold for continued rapid growth. IoT-market growth will suffer if the market does not adopt a technology standard.

  • Less developed countries equal more risk

Talkpool has exposure to more than 20 countries, many of which are in regions of poor political and legal stability. This is particularly true since Talkpool acquired the Pakistan company LCC, exposing itself to a more volatile market. Quarterly results going forward could be more volatile due to market instability.

  • Impairments are part of the business

We believe 60% of Talkpool’s revenue comes from implementation, a market segment notorious for impairment losses. If the Company does not comply with requirements set out in contractual terms and conditions could result in impairments and higher costs related to the project. This might result in heavy losses and impact the development of Talkpool. However, Talkpool has historically not been required to take major impairments.

Last updated: 2017-11-13 Source: Redeye