Vislink the great value play

Vislink is a company going places. It makes high-tech broadcast and surveillance equipment used by the BBC, Sky (SKY) and NBC to broadcast major sports and news events worldwide, and has grown both organically and through lucrative partnerships and sensible acquisitions. That much is clear from these full-year results, which easily beat market expectations.

Adjusted operating profit surged by two-thirds in 2014 to £7.2 million on revenue up 3.4% at £61.9 million. Business is typically lumpy across the regions - UK sales soared 140%, following a new deal to supply video uplink and downlink to all police helicopters in the country. A large broadcast contract in the Middle East was not repeated, although spending there could resume at any time. Elsewhere, the US and Latin America were subject to the usual "ebb and flow" of business.

But after its five-year turnaround plan hit targets, management has spelled out objectives for the next few years. They're not necessarily new ideas, rather part of an ongoing transition toward higher margin software and services work in markets worth over £500 million annually. Customers are quite conservative given they're dealing with live content, but moving to the cloud and a SaaS-based model could be huge for Vislink.

Management is certainly confident enough to announce a progressive dividend policy and raise the full-year payout by 20% to 1.5p a share for a 3% yield.

Pebble Beach Systems, bought by Vislink for £14.9 million a year ago was the star performer in 2014. The business which develops software used by TV broadcasters and cable and satellite operators, chipped in £8.3 million of revenue and £3.3 million of profit in nine months, above management’s original expectations.

Pebble Beach generates higher returns than much of Vislink's existing business, which explains why group operating profit margin jumped by 440 basis points to 11.6%. The unit is growing the customer base fast, too, with half its top 10 customers in 2014 were new clients.

A strategic partnership signed in June with large American tech outfit Harmonic Inc is bearing fruit, too. They have over 100 sales people on the ground selling packages, integrated with Pebble Beach Systems' software, to the international broadcast market. Harmonic placed an initial £2 million order with Pebble Beach and also bought 4 million Vislink shares at 50p each.

And, after the period-end, Vislink tied up with NASDAQ-listed GoPro to produce a transmitter small enough to be worn on the body or in unique areas. It's completed a successful testing period and the pair will sign a formal production agreement in 2015. We may see more of this at the NAB trade show in Las Vegas starting 11 April.

Despite the obvious potential, Vislink shares trade on modest multiples. Even using N+1 Singer's upgraded estimates for adjusted EPS of 4.5p in 2015, and 4.9p the year after, only gives a forward price/earnings (P/E) ratio of 10.9, dropping to 10 for 2016. That's a big discount to peers.

What's more, the uber-bulls at research house Equity Development reckon Pebble Beach on its own is worth almost £52 million, or 42p per share. "Although conditions continue to be 'challenging' in broadcast hardware, our target price [for Vislink] has been lifted 6.7% from 75p to 80p/share."

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.