UK-listed Telit soars on Internet of Things buzz

A man shelters under an umbrella as he walks past the London Stock Exchange in London, Britain on Aug 24, 2015.
A man shelters under an umbrella as he walks past the London Stock Exchange in London, Britain on Aug 24, 2015. PHOTO: REUTERS

NEW YORK • A little-known stock listed in London is now a top pick for investors keen to profit from the technological megatrend referred to as the Internet of Things (IoT).

Telit Communications sells hardware that lets everything from vending machines to rental cars transmit data wirelessly. Its share price has surged almost sixfold since the end of 2012. This year alone, the stock has rallied 37 per cent, far outpacing its main industry rivals.

IoT - tech speak for the proliferation of connectivity and electronic functionality in everyday items - will generate hundreds of billions of dollars in revenue in coming years, analysts say.

Of the many firms seeking to profit from it, Telit - founded in Israel in 1986 - has emerged as a standout.

Chief executive Oozi Cats is trying to boost profit margins by expanding into the lucrative collection and analysis of data sent by "smart" machines.

He has also made acquisitions to position Telit as a supplier for Internet-connected cars, a fast-growing area, according to tech research firm Gartner.

"The world is swimming with small, ankle-biter companies," said Gartner analyst Eric Goodness. "Very few can say they've been around a long time in the legacy manufacturing and industrial community, yet are able to play in the very dynamic IoT market."

Telit began as a research and development shop for international telcos. It went public in London in 2005, largely as a maker of machine-to-machine wireless gear.

As costs fell and wireless bandwidth opened up, it widened its scope. Its products now collect, transmit and analyse operational data for firms in at least nine sectors, including healthcare and security, according to an investor presentation.

"Telit is playing data aggregator," Mr Cats said in a phone interview. He owns 20 per cent of the firm.

He said Telit's solution is "the most intelligent and elegant way" to take data from edge devices and deliver it to companies' management software.

Investors should temper optimism about stocks tied to IoT because the greatest beneficiaries are likely to be non-tech firms that use machine data to wring greater efficiencies from operations, said fund manager Ben Rogoff.

The pace of tech adoption is also uneven and hard to predict, said Mr Rogoff, who oversees US$2 billion (S$2.8 billion) in tech stocks for Polar Capital Partners in London.

"What Telit is tackling is about as good as it gets, but the truth is, the near term is still far more prosaic," he said. "Investors should be mindful of that."

Telit's net profit for the first half of the year was up 34 per cent year-on-year at US$13.4 million, while revenue rose 13 per cent. Adjusted earnings after income tax came to 10 per cent of revenue, up from 9 per cent previously.

Full-year sales are forecast to increase to US$350 million. Mr Cats says he is aiming for US$500 million in revenue by as early as 2017.

He is betting on Telit's investments in cloud computing and cyber-security software for cars to fuel that growth. It bought assets from NXP Semiconductors last year to set up an automotive unit, and Mr Cats says it has 10 car customers so far, including Audi.

"People are thinking they can replicate large contracts with other car manufacturers," said Berenberg Bank analyst Benjamin May. "For a US$300 million revenue business, it can be material."

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A version of this article appeared in the print edition of The Straits Times on October 12, 2015, with the headline 'UK-listed Telit soars on Internet of Things buzz'. Print Edition | Subscribe