David Holding reckons that the communications group Vislink looks like a solid long-term investment.
The old adage goes that if you want to make money in a gold rush, the most reliable way is to sell picks and shovels. In a similar way, when you see live news images from war-torn corners of the globe, or from the scene of a major disaster, the company supplying the equipment to enable this may well be Vislink (LSE: VLK).
Vislink is a group of companies that design, manufacture and install video and data links for some of the most extreme and high-pressure situations in the world. Its six companies cover areas such as microwave radio communications for broadcasters, carbon fibre antennas, up-link trucks and electronics for satellite broadcasts, marine CCTV, and other related products and services.
Last year, the company's sales exceeded £100m, on which it made an adjusted operating profit of £9m. Yet at its current mid price of 26p, Vislink is valued at less than £37m. This looks too low to my eye given the strength of the balance sheet which shows net current assets of £24.5m, an overall net asset value of £54.3m. Vislink also generated £8.6m of operating cash. It's particularly impressive that the company managed these results whist still investing heavily in R&D.
New direction
In January, the company announced its new strategic direction to reorganise the business around its markets and reckons it is already seeing the benefits from this change. It has also taken steps to "improve operational efficiency" which we can translate to "save money" and entered 2009 with an order backlog of £34.1m. Vislink also felt confident enough about the future, despite the economic backdrop, to maintain a respectable once a year dividend of 1.25p -- a yield of 4.8% at the current price.
Meanwhile, the broker has earnings per share of 4.3p pencilled in for this year, rising to 5.5p for 2010, placing the shares on a prospective price-to-earnings ratio (PER) of 4.8.
The share price graph has the same ski-jump pattern of so many others recently, recovering from a low of 15.25p in December. Where it will go from here will hinge on trading conditions going forward. And though the company is mindful of the recession, a lot of its business is resilient in times of economic downturn. It may be stretching a point to describe Vislink as a defensive stock, but the current price factors in a lot of bad news.
Vislink has excited some interest and very thorough analysis on The Motley Fool's discussion boards. This is well worth a read for anyone considering investing.
Market niche
Overall, the company would appear to have a strong market niche, being a recognised leader in its field as one of the world's leading engineers of infrastructure-independent communications. Over the past decade, Vislink (and its predecessor company Silvermines) has steadily grown turnover despite the odd setback here and there, whilst managing to maintain a healthy balance sheet throughout. This is a solid and well-managed business; a fact which isn't fairly reflected in the wild fluctuations in the share price from around £1 two years ago to a new low last December. I see Vislink as a long term investment -- and one that's surely better to buy on temporary weakness than on strength?
The new boss appointed last October, will no doubt have his own ideas about driving the business forward and, hopefully, extracting some of the inherent value for shareholders -- because the current price certainly doesn't seem to factor in the company's potential.
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David owns shares in Vislink.
