The sharp decline in stocks yesterday served as a timely reminder that shares go down as well as up.
Even those stocks that have fared extremely well in these strange Covid induced times took a bit of a hit, where on a personal level I saw some of my substantial profits on G4M pull back.
But, under such circumstances it is perhaps important to try and see the wood from the trees here, where although nothing is ever guaranteed, certain sectors and thus stocks have been and will be more resilient and potentially provide for further upside as we remain in a difficult period.
In terms of sectors I have gone nowhere near the areas of pubs, eateries or anything leisure related and will refrain from doing so until we see some real light at the end of this particular tunnel, when their time will no doubt come to present sizeable opportunities.
One stock I hold that also came off a bit yesterday was MTI Wireless Edge (MWE) which I bought in two tranches going back to the summer and where, despite the pull back yesterday I'm still around 15% to the good.
I single this one out, as it has not only proven pretty Covid resilient, but importantly has excellent near and medium term prospects, particularly across the area of 5G where it works for and with the likes of Nokia.
As I write the shares are actually up a few pence to 46p this morning which was was prompted by MWE announcing a significant new contract worth $1.5m. This is a very positive, a welcome deal and is interesting as it is attributed to the third arm of the business that is relatively more recent to the group.
I have slightly amended my article from a few months back to include the recent news and posted here today, largely as things are very much panning out as highlighted then and where the shares continue to look attractive, particularly when succumbing to general market weakness and wider sentiment:
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The more positive resurgence of MWE and recent momentum of the share price has been built on significant progress being achieved by what is now an enlarged company with as mentioned, three distinct arms, all of which have extremely exciting prospects moving forward.
One of these that I really like the look of is the company's Mottech Water Solutions which is a water control and management business that is now demonstrating strong growth.
This division provides wireless control systems to manage agricultural irrigation and water distribution for municipal authorities and commercial entities. It operates under the Mottech brand and utilises hardware technology from Motorola, integrated with the Company's own proprietary management software.
The solutions reduce water and power usage, whilst providing higher revenue from accurate irrigation, leading to more and better quality crops and plants being grown.
Last year saw it achieve an impressive 16% overall growth which is being driven on the back of climate change issues and the increasing concerns around water scarcity.
Most recently the division has increased its presence in China which represents its fastest growing region and where to date, it has secured a single largest order of $3m.
Back in July it announced some really exciting news regarding a new wireless irrigation system titled Tethys, which was specifically produced for the French Wine Industry. The system was only launched in March of this year and has already signed up 200 French vineyards as customers via its relationship with four water associations who provide irrigation services to the wine producers.
The Tethys water management system enables accurate water distribution and irrigation management, resulting in a 30% increase in crop yields while reducing costs by around 30% from the efficient use of water, fertiliser, energy and labour according to the release from MTI, which appears to make for a compelling case regarding adoption.
What makes it even more attractive from an investment angle is that the system is said to be the only one in the world that enables vineyards to select in advance the exact time, date and amount of water to be supplied which is in effect a win-win situation for all parties.
And the beauty of the tech is that it can be operated from a smartphone and from distance, so is easy to use and is an ideal system given that as a direct result of climate change authorities in France have been forced to ease what had previously been extreme restrictions on water permitted for use to vineyards.
Although the initial aim of the product was the French market, there would appear to be a massive opportunity for MTI to expand its offering globally, not least as the world bank estimates that 25% of freshwater is wasted.
Agriculture, including the wine industry accounts for 70% of all freshwater usage so the need for such a novel system is apparent.
Away from its water focused arm MTI still retains a big presence across Antennas, which sees it enjoying a global spread of customers that includes military, defence and telecommunications customers.
The real excitement here though, is an increasing exposure to providing 5G backhaul antenna solutions to support mobile phone operators as they roll out their networks.
In its Q1 release from May of this year the company commented,
“The antenna division, which sells antennas and custom developed antenna solutions, has exciting opportunities in the future sales of its 5G backhaul antenna solutions to support mobile phone operators roll-out their 5G networks.
While COVID-19 has generally had a negative impact on businesses this has not been the case for the telecom industry. Mobile operators are experiencing the highest ever demand for bandwidth as the western world switches to working and learning from home.
The change in telecom usage that was expected to occur over a period of years has occurred in just weeks and provided 5G with significant impetus”.
Clearly, there looks to be significant growth prospects within the antenna division and although there has obviously been some inevitable disruption within some areas over recent months, it is worth noting that across the group no single customer accounts for more than 7% of total revenues.
The third part of the group is that of distribution and consulting which has seen it amongst others providing radio frequency and microwave technology into border control systems.
The surge in internet usage with remote working has hastened the case for 5G and the demand is not going to diminish which puts MTI's business in an excellent spot.
That also applies across the water control and management space where increasing demand and diminishing resources opens up larger openings that could bring sizeable monetary rewards.
Growth has largely been organic which is now seeing increasing cash generation, which in turn should lead to a further progression in the dividend that is already well covered at more than 2x earnings.
Net cash as of the end of March this year stood at $8.6m up from the $5.2m of the corresponding year and looks set to continue rising, whilst there is also a freehold property on the books.
The most recent news on numbers came back in August in the shape of the interim results which saw decent revenue growth against the difficult economic backdrop.
All three divisions saw 3% growth to $19.6m with operating profit up 28% to $1.9m and a very positive performance on cash conversion which came out $7.6m against the corresponding periods $5m.
The management expressed confidence in further delivery where a strong forward order book underpins expectations regarding full year profits.
Post the Interim results, the company announced a deal in September that perhaps provides for a taster of further announcements in due course.
This saw the company announce that it had secured a framework order totalling $0.5m for 5G dual band backhaul antennas that is expected to be completed in the next nine months.
MWE enjoys a broad geographical reach with some reasonably diverse end markets and thus navigated the various earlier lockdown situations well, so despite that situation once more coming to the fore, it should be well placed to ride through the situation.
Within that too, it seems highly likely that such restrictions should not impact the workplaces so severely as previous, where there is a clear realisationon that the situation requires balance to protect the economy as much as possible.
It should be interesting to see just where the market heads in the coming weeks and how it may impact on stocks such as MWE, where if there is further general weakness, I may well be adding to my position.
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