Maintel Holdings – a potential bargain at less than a third of last year’s high

Maintel Holdings, now trading at less than a third of last year’s highest price and with 70% ARR, looks good value, writes Mark Watson-Mitchell. 

On the face of it this company’s investment merits look abysmal.

But that is just on the face of it.

Yes, its net debts at £25.7m are larger than the current market capitalisation of just under £25m.

Yes, it has been hit by a big pull-back in its client business due to Covid19, with several postponing projects.

Yes, it has suspended current December year-end profit guidance.

And it has also suspended its dividend payments.

However, I do think investors prepared to take an 18-month view should be tucking some Maintel Holdings (LON:MAI) shares away into their portfolios.

With a focus on communication, it is a cloud and managed services company for both the private and the public sectors.

Its core expertise encompasses unified communications, contact centre solutions, workforce optimisation, networking and security, mobile and connectivity services. It provides complete end-to-end solutions delivered on-premises or via the cloud to companies nationwide and internationally.

It operates through three segments: Telecommunications Managed Service and Technology Sales, Telecommunications Network Services, and Mobile Services.

The company’s digital workplace provides unified communications, meeting technology, collaboration services, mobile devices and services, document management, and digital print management.

It also offers a portfolio of connectivity and communications services, including managed MPLS networks, security as a service, Internet access services, SIP telephony services, inbound and outbound telephone calls and hosted IP telephony solutions.

In addition, the company provides value added services, such as mobile fleet management and mobile device management.

However, in the last year or so the group has coped with some major challenges in its operations.

Then coming up against the dreaded virus saw the company taking some early and robust measures to protect its business, including cost-reductions and preservation of cash, while not impairing its full service for its clients.

Since late March, the vast majority of its employees, except for a small number of staff based in its warehouses and some on-site support personnel supporting front-line operations, have been working remotely, fully supporting the group’s customers to ensure they have flexible and remote working solutions in place to protect their operations.

The 2019 December year-end final results were announced last Monday. They showed group revenue down 10% from £136.5m to £122.9m.

Its pre-tax profit was down 18% from £2.2m to £1.8m. However, there was a 56% increase in unadjusted basic earnings from 14.4p to 22.4p per share.

Importantly, some 70% of the group’s sales are annually recurring – of which I approve.

Net assets ended the year at £20.9m.

The company has some 14.3m shares in issue, of which Chairman John Booth holds 3.33m (23.3%) and fellow director Angus McCaffery owns 2.19m shares (15.4%).

Institutional investors include Canaccord Genuity Wealth (9.69%), Herald Investment (5.62%), Chelverton Asset (4.15%), Barclays Wealth (3.09%) and Slater Investments (2.27%).

The Chorley, Lancashire based telecoms and communications services group Elitetele.com holds 5.02%. Another two investors have notable holdings, JA Spens owns 15.6% and M Riley has 4.53%.

That makes up a fairly tight equity, which could provide the base for some share price fun when the good news starts to flow again.

With the various measures that have been taken and are now underway, that leaves the group extremely well positioned in the market once the current situation abates.

The AGM, due in late June or early July, could well be the start of some more bullish news from the company.

The group’s shares, which reached 990p way back in 2016, were traded at around 550p a year ago, but that was before the January trading update which saw them drop to 275p.

At the worst in late March they fell to just 150p. They are now looking more positive at 173p, at which level a few locked away has to be a potential gainer.

I now set an 18-month target price of 250p, which I believe will be an easily managed goal.