Investment Thesis
Novatel is one of the cheapest stocks in the market today. At $32 million of total enterprise value and $375 million of sales (.09x TEV/Rev.), the price of the stock represents a mere fraction of its value. On either a sum-of-the-parts or discount-to-net asset-value basis, Novatel is inexpensive and offers an excellent opportunity to acquire a growth company at liquidation value.
Business Description
Novatel Wireless Inc. provides wireless broadband access solutions for the mobile communications market worldwide. The company primarily offers third generation (3G) products. It provides intelligent mobile hotspots, which offer WLAN and WWAN wireless connectivity to up to five users simultaneously from a range of devices, including notebook computers, music players, and digital cameras, as well as a platform to host software applications under the MiFi brand name; and embedded PCI express mini card modems that are designed for integration into multiple laptop platforms and other wireless devices under the Expedite brand name. The company also offers USB modems, which provide wireless connectivity to desktop and other fixed computing devices, as well as to laptop PCs and other portable computing devices; and Merlin wireless PC card and expresscard modems that offer mobile subscribers with high-speed wireless access to data, including corporate, public, and personal information through Internet and enterprise networks. In addition, it provides MobiLink Mobile Communications software suite, an application that enables a user to access to connectivity features, such as SMS, multimedia messaging, and virtual private networking. The company serves wireless operators, laptop PC and other original equipment manufacturers, distributors, and various companies in other vertical markets. It has strategic relationships with Alcatel-Lucent, Dell, QUALCOMM, Sprint PCS, Verizon Wireless, Virgin Mobile, Vodafone, and Telefonica.
An innovator
Novatel is a successful innovator and has managed to stay relevant in intelligent wireless:
- First to introduce USB in North America
- Invented Intelligent Mobile Hotspot
- First with Mobile Broadband Solutions for all 3G-4G Platform
- They also have a line of embedded products
Growth Product
The 3G/4G MiFi 4082 is Novatel's next generation addition to the Wireless MiFi Intelligent Mobile Hotspot portfolio. It is being sold through a partnership with Verizon (which advertises it right on their home page). The MiFi4082 offers fast 4G WiMAX mobile broadband and allows for up to five devices to get access to WiFi on the go. While this technology is becoming embedded in next generation phone designs (like Apple's iPhone), Novatel's product offers high speed without draining cellphone battery life and with great reliability. It is a must-have for travelers that need access on the road anywhere, anytime.
Sum-of-the-parts
In addition to its hotspot line of products, Novatel acquired Enfora Solutions, an M2M business, back in December for around $75 million (keep in mind the TEV for aLL Novatel is now $32 million after netting from the market cap $75 million of cash and long-term investments). As described by the company, Enfora is a leading provider of intelligent wireless asset management solutions, enabling enterprises to access, analyze and leverage information from their distributed assets (so called "M2M solutions").　Enfora's technologies are the real growth engine for the company. The products Enfora produces can be used by utilities to wirelessly measure meters or for municipalities to track meters or other devices remotely. Even if Novatel over paid for the business by 2x what it paid only eight months ago, Enfora is still worth more than all of Novatel today.
Value parameters
$107 million market cap.
($75 million) of cash
$32 million of total enterprise value
Extremely low P/BV and P/Tangible BV multiples
$97 million of Tangible book value, 1.1x tangible book value (77% of which is cash).
A tangible book value multiple approach to valuing the business attributes no value to the excess price over book value paid for Enfora, or the patent portfolio that drives the growth in the business. Novatel trades for only 0.6x book value, making it one of the lowest non-financial services P/BV multiples in the market.
Incredibly low TEV/Revenues multiple
$375 million of LTM revenues --> expected to grow to $450 million by 2013, 0.09x and 0.08x '11 and '12
Sum-of-the-parts
Assuming Enfora is worth what Novatel paid ($75 million), Enfora alone is worth more than twice what the business trades for today. The Verizon 4G hotspot technology and other embedded technologies that make up the core of the business, and over $330 million of revenues, is not even attributed any value (or has a negative value). Its main competitor, Sierra Wireless, trades for 0.30x revenues which would suggest a value of around $100 MILLION. All of Novatel is just $32 million.
Hidden value
In addition, Novatel has a patent portfolio of 42 patents and 60 pending that likely has value.
It is hard to see how the margin of safety is not overwhelmingly large in Novatel and the upsides potentially rewarding for value investors.
Novatel is one of the cheapest stocks in the market today. At $32 million of total enterprise value and $375 million of sales (.09x TEV/Rev.), the price of the stock represents a mere fraction of its value. On either a sum-of-the-parts or discount-to-net asset-value basis, Novatel is inexpensive and offers an excellent opportunity to acquire a growth company at liquidation value.
Business Description
Novatel Wireless Inc. provides wireless broadband access solutions for the mobile communications market worldwide. The company primarily offers third generation (3G) products. It provides intelligent mobile hotspots, which offer WLAN and WWAN wireless connectivity to up to five users simultaneously from a range of devices, including notebook computers, music players, and digital cameras, as well as a platform to host software applications under the MiFi brand name; and embedded PCI express mini card modems that are designed for integration into multiple laptop platforms and other wireless devices under the Expedite brand name. The company also offers USB modems, which provide wireless connectivity to desktop and other fixed computing devices, as well as to laptop PCs and other portable computing devices; and Merlin wireless PC card and expresscard modems that offer mobile subscribers with high-speed wireless access to data, including corporate, public, and personal information through Internet and enterprise networks. In addition, it provides MobiLink Mobile Communications software suite, an application that enables a user to access to connectivity features, such as SMS, multimedia messaging, and virtual private networking. The company serves wireless operators, laptop PC and other original equipment manufacturers, distributors, and various companies in other vertical markets. It has strategic relationships with Alcatel-Lucent, Dell, QUALCOMM, Sprint PCS, Verizon Wireless, Virgin Mobile, Vodafone, and Telefonica.
An innovator
Novatel is a successful innovator and has managed to stay relevant in intelligent wireless:
- First to introduce USB in North America
- Invented Intelligent Mobile Hotspot
- First with Mobile Broadband Solutions for all 3G-4G Platform
- They also have a line of embedded products
Growth Product
The 3G/4G MiFi 4082 is Novatel's next generation addition to the Wireless MiFi Intelligent Mobile Hotspot portfolio. It is being sold through a partnership with Verizon (which advertises it right on their home page). The MiFi4082 offers fast 4G WiMAX mobile broadband and allows for up to five devices to get access to WiFi on the go. While this technology is becoming embedded in next generation phone designs (like Apple's iPhone), Novatel's product offers high speed without draining cellphone battery life and with great reliability. It is a must-have for travelers that need access on the road anywhere, anytime.
Sum-of-the-parts
In addition to its hotspot line of products, Novatel acquired Enfora Solutions, an M2M business, back in December for around $75 million (keep in mind the TEV for aLL Novatel is now $32 million after netting from the market cap $75 million of cash and long-term investments). As described by the company, Enfora is a leading provider of intelligent wireless asset management solutions, enabling enterprises to access, analyze and leverage information from their distributed assets (so called "M2M solutions").　Enfora's technologies are the real growth engine for the company. The products Enfora produces can be used by utilities to wirelessly measure meters or for municipalities to track meters or other devices remotely. Even if Novatel over paid for the business by 2x what it paid only eight months ago, Enfora is still worth more than all of Novatel today.
Value parameters
$107 million market cap.
($75 million) of cash
$32 million of total enterprise value
Extremely low P/BV and P/Tangible BV multiples
$97 million of Tangible book value, 1.1x tangible book value (77% of which is cash).
A tangible book value multiple approach to valuing the business attributes no value to the excess price over book value paid for Enfora, or the patent portfolio that drives the growth in the business. Novatel trades for only 0.6x book value, making it one of the lowest non-financial services P/BV multiples in the market.
Incredibly low TEV/Revenues multiple
$375 million of LTM revenues --> expected to grow to $450 million by 2013, 0.09x and 0.08x '11 and '12
Sum-of-the-parts
Assuming Enfora is worth what Novatel paid ($75 million), Enfora alone is worth more than twice what the business trades for today. The Verizon 4G hotspot technology and other embedded technologies that make up the core of the business, and over $330 million of revenues, is not even attributed any value (or has a negative value). Its main competitor, Sierra Wireless, trades for 0.30x revenues which would suggest a value of around $100 MILLION. All of Novatel is just $32 million.
Hidden value
In addition, Novatel has a patent portfolio of 42 patents and 60 pending that likely has value.
It is hard to see how the margin of safety is not overwhelmingly large in Novatel and the upsides potentially rewarding for value investors.
