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NCI - NTG Clarity Networks Inc.


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NTG Clarity Networks Inc.


12m M-Cap. .30$/share. Liquidity: Enough to get a 6 figure position in a few days.



I believe this to be a low risk investment given 50% of share price is net-cash/share (included insured AR - AP).  No debt.  50% of revenues are recurring. Large growth in revenues. Occasional share buybacks. I have a share price of about .37$/share, 30% above today's price as a rough MOS if we take 50% of revenue as recurring on the projected 20m revenues for 2015 and add in cash/equivalents.


Base Case

On 20m 2015 revenue I get 8.5m GP. This works out to about 2.45m NI on 40.27 shares. 10x multiple add in cash is .86$/share. 300% appreciation. Their average revenue growth per year over the last 3 years is 60%, if they hit their 20m revenue guidance for 2015. A company growing revenues at this pace should have a much higher multiple than what I'm using but the location of their revenue and customer concentration will likely keep that multiple lower for now.



Provider of telecommunications engineering, networking and related software solutions.  NTG has been developing niche software products directed at the telecom service providers market since its inception in 1992. We have offices in Toronto, Canada, Cairo, Egypt and Riyadh, Saudi Arabia and have over 380 employees and consultants, over 200 of whom have expertise in telecom and information technology.  CEO/founder: Ashraf Zaghloul. 15% ownership. Salary 2014, 215k. Good annual reports, receptive to phone calls about co. operations.


Main Product: NTS. Working on NTS Dashboard a biz intelligence software and NTS Project Mgmt Portfolio. Launching new product "Stage" (Enterprise Management) as we speak.



-As of Q2 2015, 33% of revenue from one customer--(this is down from 67% PYP).

-All of revenue from Middle East. Most from Saudi Arabia and Egypt. Some from Qatar, Kuwait, Oman. (90% of contracts from SA are insured by the EDC of Canada, the export promoting governmental arm. This significantly mitigates the receivables risk. I count receivables as cash given their insurance).

-Perhaps no barriers to entry.

-Key person risk.

-In my valuations, I've counted AR - AP as cash due to the policy of 90% of receivables from Saudi Arabia insured (the insurance has been used before). Their AR from Egypt are significant and not insured by EDC (however "NTG Egypt, though not insured with EDC, deals with primarily with tier 1 telecom customers in the region.")



Profitable 9 of last 10 quarters. In June 2015 they received a 3.9m contract with "a top global management consulting and outsourcing company". Actively marketing to N.A. but no sales yet. I believe the new product "Stage" will target some sales to N.A. as well as middle-east.  Insiders own 25%. Recurring revenue of about 50%. 2015 revenue guidance of 20m (there have been less contracts announced in the last few months, so with a more modest 16-17m I still see 100% appreciation). They are looking for strategic acquisitions in the telecom services with their large cash balance. They state gross margins of 40-50%, and a 50/50 split between Products and Professional Services. The former has 60% margins and the latter about 35% for a 47.5% average. Their average GM for the last few years has been closer to 42.5% and that's what I model).  Gross margins will fall due to start-up costs in Kuwait, Qatar, Oman. Most sales in USD and no hedges. Sales in Africa will likely be targeted in 2016 but middle-east main focus right now. They are periodically buying back shares in the open market.


Last Thoughts

I see a high apparent MOS in net-cash and recurring revenue. The revenue growth of the last three years is very impressive. The founder/CEO Ashraf Zaghloul seems good, modestly paid and runs his business conservatively given the balance sheet. The share buybacks, though small, are a a signal management is aligned with shareholders. The real upside is dependent on the multiple. Can the market give a reasonable multiple to a company that services this region of the world? I think the EDC insurance, revenue growth, conservative management will help with that and I feel the stock is safe while I wait. The potential IRR is very large.



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See page 4 of this presentation for their milestones since 1993 http://ntgclarity.com/investor_relations/IR-May-15.pdf


Back in 2003 they were focused on the network industry, not just telecom, and also large enterprises unrelated to telecom. They had 4 biz units: Professional Services, Software Products, Training Services, Field Services. Today, there are just the first two and they solely focus on telecom.  In 2005 they were also marketing to the Financial Services sector and Oil and Gas. They dropped Field Services. Prior to about 2009, most of their revenue was from N.A. Now it is all from the middle-east. They cite intense competition as the reason.


Since 2009 it's been growth in middle-east markets and in 2010 they dropped Oil and Gas, Financial Services, and just focused on telecom.


So from one point of view, they failed in their key regions and failed in different business segments. The other point of view is they've literally found their niche and the margins and sales growth are a testament. If they have found their niche, there is a lot of growth ahead of them given their new but related and complimentary products, and their large market in the surrounding middle-east countries where they have their sales teams working.


Given the recent revenue growth, and the cash per share. I think it is good risk reward. The next 2 years should be interesting.



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  • 8 months later...
  • 2 months later...

Did you ever get any answers? Seems questionable to ramp up the sales force to take losses--even if they are temporary losses. Wouldn't you just fund those salaries through sustainable cashflows if your other locations were making money?

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