Founded 35 years ago, Netcomm Wireless is one of the corporate grandfathers of the local tech sector — but its business model is far from dated says tech expert Tim Knapton of TechVoyage.

The company had a pioneering start as Australia’s first dial-up modem maker.

From that remote communications pedigree it has evolved a range of solutions that place it at the centre of two booming tech sub-sectors: IoT (the “Internet of Things”) and a range of wireless and cable broadband systems.

As a result, Netcomm (ASX:NTC) is also rubbing shoulders with some globally powerful partners in the communications space.

The Internet of Things is basically the connection of all manner of devices to the internet to create smart communications networks, ranging from vehicles to home appliances to sensors for security, traffic and monitoring in remote locations.

In industry parlance these are “machines” and Netcomm has developed a range of fixed wireless M2M (“machine to machine”) products.

On the broadband side, Netcomm has several core offerings, one of which provides a faster lower cost form of internet connectivity by bypassing infrastructure while another provides a lower cost way of using the oldest infrastructure of all.

The first is FTTdp and CTTdp (“Fibre To The distribution point” and “Cable To The distribution point”) units for providing an alternative where access to the premises is not required.

The second is supplying broadband to connect customers to VDSL (“Very high bit-rate Digital Subscriber Line”) or ADSL (“Asymmetric Digital Subscriber Line”) internet connectivity via copper wires.

A major landmark for the company on the broadband side was the 2016 contract in alliance with Ericsson to provide a $1.1 billion remote communications FTTC (Fibre-To The Curb) network as part of the NBN (National Broadband Network roll out.

This was the first such project in the world. Less than three years since the first trials, the network has now reached half a million homes, of which 35 per cent have connected.

The alliance may well result in international projects with Ericcson. Netcomm has since won a similar project with AT&T to provide a remote communications network across 18 US States.

Last financial year, Netcomm’s revenues grew by 26 per cent to over $100 million. It’s underlying EBITDA grew by 42 per cent to over $8 million.

The margin is still slender because the group is in growth mode.

On conventional valuation metrics the stock does not look cheap – the historic EBITDA multiple is over 20 times.

But in the last few years, Netcomm has invested significantly in people and technology to meet the expected demand growth on both sides of the business.

Its engineering team has expanded from 61 to 142 and its sales and marketing team has risen from 31 to 40.

Last financial year alone, it invested over $23 million in people and infrastructure (such as Radio Frequency chambers and a Faraday cage for absorbing electromagnetic waves) and that should pave the way for several years of very solid expansion.

 

Tim Knapton is the founder and CEO of online tech research and finance marketplace TechVoyage.   Its video/financial database and digital broadcast platform provide a more efficient way for investors to appraise listed and unlisted tech companies and for entrepreneurs to finance, acquire and exit them.   

Previously Tim was Head of Corporate Broking at Deutsche Australia and before that ran a research department for a leading broking house.  Tim has also been a freelance tech/finance journalist for more than 20 years and a columnist with The Australian Financial Review, The Bulletin, BRW, Shares and Australian Business.

 

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

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