SatCom flying below radar

The loneliness of the long-distance investor I started investigating SatCom (SGH) befuddled by the business of reselling satellite airtime and telecommunications equipment to governments, the military, aid agencies, mariners and people working in remote areas and disaster zones. SatCom’s extraordinarily low share price, less than five times earnings over its five listed years, and growing profits and financial strength was very tempting though: SatCom’s website wasn’t much help. It’s like a Carphone Warehouse for tough cookies, but since I wouldn’t know a satellite terminal from a train terminal I got lost clicking around it. The annual reports are terse too, but read as supplements to its AIM admission document, published when SatCom listed in 2005, they shed more light on its business, and how it’s developing. SatCom supplies airtime, handsets and data devices from the major satellite operators, Inmarsat, Thuraya and Iridium, advising its customers on the most appropriate service and kit, billing them, and providing customer service. In 2005, 70% of its revenues came from just four customers, mostly US government departments, and although it had done well selling land based mobile satellite systems deployed in the Middle East and in natural disasters, its fortunes were tied to the level of conflict and disaster, which was generally falling. The floatation gave it the funds to buy Horizon Mobile Communications in 2005, a supplier of maritime systems less dependent on conflict, and Net Africa Arabia, which introduced it to satellite broadband. Since then demand for increasingly fast broadband seems to have propelled sales and earnings, and it’s acquired a more diverse range of systems and customers. It looks as though investors were initially enthusiastic about SatCom, despite its dependence on a few customers and short track-record (it could report sales and profit growth for every year of its existence, but it had only existed since 2001) but as it diversified and extended its record of growth, they cooled off. With 62% of sales now coming from the US, down from 84% in 2005, its fulfilling its promise... ...Yet the shares are less than half their level in 2005. It looks like the bargain of the decade, but like Armour last week, there’s so little interest in the shares it’s not possible to buy them at anything like the quoted mid price. In fact, the spread is much wider than Armour’s. It’s 4p, (13-17p) or 27% of the mid price (15p). As I said, a broker can often buy the shares cheaper, but in the case of SatCom that’s less likely because they are so hard to come by. Co-founder and chief executive Mark White and three of his fellow directors own 81% of the company. Satcom listed because it needed money for acquisitions, and to raise its profile. It’s achieved the first goal, but it could hardly have a lower profile. According to Sharescope, it has no analyst following. The Investors Chronicle tipped the company until 2008 but has since gone quiet, the only article I can find in the Financial Times reports on SatCom’s flotation, and the last message on our own bulletin board says: The board is so quiet....had to say why is this share so cheap? Growing company, good sector, amazing customers, good balance sheet....it was painful to buy cos [sic] of the huge spread - but can anyone think of anything wrong with it? Does anyone ever look at this board? I have reservations about the balance sheet, which is full of goodwill, but my main reason for rejecting SatCom is that I don’t know what purpose its listing serves. It’s an expense and a distraction and at such low prices, its managers must surely be tempted to buy out the remaining shareholders. Although there’s great potential in the share price (and rising dividend), the huge cost of buying the shares guarantees a paper loss in the short-term, and there’s a risk SatCom’s long-term will not be played out in the stockmarket. I feel like a coward, but our bulletin board poster is on his own. - Thrifty 30 updates: The current Thrifty 30 portfolio   Ricardo published reassuring interim results. John Shepherd, ceo of Quadnetics, bought 40,000 shares at 150p.

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