James Faulkner’s small cap of the week is Amino Technologies

3 mins. to read

I thought it worth revisiting set-top box manufacturer Amino Technologies (AMO), after the firm said in a recent trading update that it expects profit before tax to be ahead of market expectations for the current financial year. It also said that revenue has returned to the traditional second half weighting and, as such, expects to report revenue for the year ended 30th November 2014 in line with market expectations.

Making boxes…

Amino is a market-leading operator in the rapidly growing internet TV market, providing complete hardware and software solutions which enable the delivery of television content to viewers via a broadband internet connection. The core set-top box business caters to IPTV (internet protocol TV) service providers, while there is also a nascent product line aimed at the OTT “over the top” market, which enables the delivery of video content from the open internet by both IPTV providers and satellite or cable service providers.

The latter is a huge growth market estimated to be worth $20 billion by the end of 2014, according to research from MRG. Importantly, the heavy lifting of the product investment stage appears to be complete, enabling older IPTV products to be phased out while existing customers are encouraged to migrate to the new boxes. Furthermore, the initial discounts on the OTT products will be phased out, thus pointing to future margin progression.

Much of Amino’s attention has lately been focused on broadening its product offering to cater for the latest developments within the home media space. The industry-wide move towards Internet Protocol (IP) as the means of delivering content between devices and around the connected home is opening up new opportunities for the company in its existing and adjacent markets.

Many home media operators are in the process of (or considering) extending their service offerings to encompass greater functionality and sophistication. In response, a wider solutions-based portfolio has been created to provide operators with a more diverse range of products to help drive new revenues and retain existing customers. While this new portfolio is expected to contribute to revenues from 2015, encouraging progress is under way with new set-top box products benefiting from enhanced performance, improved user experiences and value-added features.

Amino has made particular progress in identifying different types of markets and tailoring its products to fit them. For example, where market demand is for a lower specification device – for example in Latin America and Eastern Europe – Amino provides a highly cost-competitive and robust solution which has gained good traction with existing and new customers. Meanwhile, where customers require a more feature-rich, high performance device for specific customer segments, Amino has likewise introduced the new Live Advanced Media Platform to meet these needs and the growing demand for multiscreen delivery around the home. At the same time, a new mainstream device – the A150: targeted at Amino’s established customer base – was commercially launched into the European market during the first half of FY14. This includes improved System on Chip (SoC) performance, integrated apps and enhanced user experience capabilities.

Further out, and with a view to enabling operators to drive additional Average Revenue Per User (ARPU) from their customers, a new service layer based around home monitoring and control is to launch in the second half of the year in North America. Called Amino Home Reach, this new solution is easily integrated into both existing and recently launched set-top devices. Feedback from customer trials is said to have been encouraging, particularly in North America, where similar offerings from major operators and new solution providers are gaining traction and validating the market as a whole.

What’s it worth?

Following the recent strong contract momentum broker Northland has assumed a 10% outperformance against its existing forecasts, which would push adjusted pre-tax profit to £4.1 million resulting in adjusted EPS of 7.7p for 2014, translating into a PE ratio of 12.1 times. The broker has also put through similar upgrades to its FY15 forecasts.

And then there’s the elephant in the room – the cash pile. At the end of May, net cash stood at £19.7 million, which is roughly equal to 40% of the current market cap. Furthermore, at the time of the interims, management announced an extension to the progressive dividend policy, “with an expectation that the dividend will grow by no less than 10% per cent per annum for a further two years up to and including the year ending November 2016.” With the firm expected to return to top-line growth next year, it will be interesting to see how management dispose of the cash pile.

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