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Novatel - Deep Value Opportunity

October 24, 2011 | About:
george1357

george1357

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Novatel Wireless (NVTL) represents an excellent opportunity to invest in a growth company at a stock price below liquidation value. NVTL is a premiere player in the fast growing mobile hotspot industry which is currently benefiting from the 3G to 4G upgrade cycle. Novatel’s MiFi product line is in the early stages of rollout and is the clear market share leader. Novatel’s MiFi4082 hotspot device offers fast 4G WiMAX mobile broadband and allows up to five devices to get access to WiFi on the go.

A key catalyst is the Verizon (VZ) partnership. Novatel has teamed up with the right partner in Verizon: 1) Verizon is heavily promoting NVTL hotspot products, 2) offers the best 4G network. The Company is a direct beneficiary of the organic subscriber growth of Verizon’s 4G network (experiencing >20% CAGR).

Importantly, Verizon management is excited about the opportunity. On Verizon’s Q3 conference call (10/21/11), Verizon management seemed to go out of its way to highlight the importance and profitability of the hotspots to Verizon (keep in mind that Verizon is a $200 billion company, mentioning the “key strategic focus” of a product supplied by Novatel, a $48.5 million company):

“Internet data devices have an ARPU of about $49. While the growth of these devices is diluting our postpaid ARPU growth at this time, expanding this category remains a key strategic focus for us. We continue to see strong demand for our 4G LTE mobile Hotspot devices and PC cards as well as tablets. This category of devices represents nearly 8% of all our retail postpaid subscriber base. I would also note that these data-only devices typically carry a much lower subsidy than phones. They have a very short payback period and contribute to profitability fairly quickly. In addition, the migration of data traffic from our 3G to our 4G network will enhance our capital and operating efficiency and will help us drive improved returns going forward.”

And yet, the Mobile Computing division is only one part of Novatel. The M2M (machine-to-machine) segment offers investors a free option of substantial, unrecognized value. The wireless metering business is in its infancy; via its Enfora unit, NVTL has substantial exposure to this dynamic industry. This is a quiet growth engine that is worth at least the current total enterprise value of the entire company (all of Novatel).

At a $48.5 million TEV and $375 million of LTM growth revenues (0.1x LTM Rev.), Novatel represents one of the cheapest growth stocks in the market today.

Investment presentation by Shaylor Capital, a deep value small cap manager, on Novatel (NVTL):

Novatel+PresentationGF

Rating: 2.8/5 (8 votes)

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