UK INVESTMENT REPORT - INTEK-SECURICOR:
Just brought to my attention was a recent UK Investment Research Report by the European Investment Consortium Group *ABN AMRO HOARE GOVETT* -- [Phone: James McCafferty (0171) 374-7436 or James Ross (0171) 37407435].
The Report, which is entitled *SECURICOR Undervalued* - INTEK: Hidden Value, is actually a review of Securicor, which trades on the UK as SCR. The intro paragraph states:
*Full year results exceeded our expectations. Domestic recovery should expand margins in the Managed Business. The loss making communications division may well prove to be a store of value.*
The Report goes on to briefly summarize Securicor's *Results,* a highlight of *CELLNET,* of which Securicor is a major stockholder (a sale of Securicor's 40% interest representing $1.6 or $1.7 billion dollars is supposed to occur AFTER the British election next week), and finally a focus of Securicor's 67% stake in INTEK DIVERSIFIED.
The Report notes:
DEAL DETAILS:
The Communications division [of Securicor] complted the acquisition of a stake in INTEK DIVERSIFIED CORP. of the US in June [1996]. Securicor will control 67% of Intek and has contributed to its radiocomms business in the UK as part of the deal. Intek is quoted on NASDAQ and has a total value of $185 million. Securicor's stake is worth 76 million Pounds Sterling - or 5% of Securicor's total market capitalisation.
STRATEGY:
Intek is involved in the Land Mobile Radio (LMR) in the US. Enterprises such as TAXI COMPANIES, EMERGENCY VEHICLES and DELIVERY FIRMS operate low frequency radio networks to link their control centres to employees out in the field. Until recently, those wishing to use LMR signed agreements with the local authority and most of the low frequency specturm was taken up by poor quality equipment used by radio HAMS. The US regulator[s] has now *refarmed* this spectrum, opening it up to national operators such as INTEK.
The acquisition by Securicor makes good stratgic sense, as the radiocomms unit makes the technology used in the INTEK network. It puts in place the third business unit required by INTEK.
1) FREQUENCY. INTEK has rights to frequency in the 220 MHz waveband, where LMR services are offered. Spectrum is expensive and hard to come by in the US. This is clearly demonstrated by the recent spectrum auctions in the 1800 MHz waveband which raised $11 billion for the US Treasury.
2) DISTRIBUTION. In November 1996, INTEK completed its merger with MIDLAND RADIO. Midland operates a patchwork of local LMR networks across the US. Midland will be the marketing arm of INTEK and will also migrate its existing subscribers onto the INTEK network.
3) TECHNOLOGY. Securicor's radiocomms business has been developing digital technology in the 200 MHz waveband for several years. Radiocomms will become the sole supplier of network and terminal technology for use by INTEK.
MARKET:
The US LMR market is worth about $3 billion in total, consisting of around 1 million subscribers. Currently, these subscribers are using analogue technolgoy which only provides poor quality reception. INTEK's all digital network has capacity for 150,000 subs now and by the end of 97 will be able to handle 3000,000 subs and will cover 95% of the US population. Securicor estimates that the LMR market will double in size to $6 billion by 2005.
FINANCES:
INTEK is in the process of rolling out its network and is currently in the loss making phase. In 1995, INTEK lost $2.8 million, while Midland lost $2.5 million. We estimate that Securicor's associated loss through INTEK will be about 7 million Pounds Sterling in 1997. It is hard to predict subscriber numbers, as INTEK's network has only just become operational and had only 200 subscribers as of mid-December 1996. Meanwhile, revenue per subscriber will be $240 - $300. However, INTEK has good potential for exciting growth. WE ESTIMATE THAT INTEK WILL HAVE 150,000 SUBSCRIBERS BY THE END OF 1997 AND 250,000 BY THE END OF 1998, CORRESPONDING TO REVENUES OF 27 million Pounds Sterling and 45 million Pounds Sterling, repspectively.
<END OF REPORT>
So what's that .... $4.3 million to $7.2?
Most, most interesting. I am so surprised that the US analysts have not picked up on INTEK yet.
Good Investing!
Meadows |
