ECtel: Sailing in the Right Direction

The advent of digital home networks will serve as yet further proof that this company’s technology is just as important as its bottom line.

ECtel (Nasdaq: ECTX) has just posted an increase in quarterly sales for the ninth consecutive quarter and at the present stage of the company’s life, this is what counts. There’s no need to look at the company’s financial reports in detail here; they’re good and both CIBC and Oscar Gruss think so too.

ECtel is entering 2007 with more than $37 million in cash, equal to 128% of its sales. Such a rate was considered insane in previous times, and a company that was caught with a sales-to-cash ratio like this soon found itself forced by shareholders to replace its management team. For ECtel, however, this is a marked improvement on 2006, which it began with $51.3 million in cash, 221% of sales. During 2006, the company carried out stock repurchase on the open market, so the current management does not having anything to fear from the shareholders.

On a more serious note, I wholeheartedly agree with the comments of ECtel president and CEO Eitan Naor when he summed up the company’s 2006 results, “Looking ahead we believe we have the growth drivers, market coverage, leading product portfolio and highly-skilled personnel in place to propel ECtel's business to the next level in 2007,” he said.

I see ECtel as a boat that is being carried by the waves in the right direction, with the pace at which it reaches its goal dependent largely on management. Revenue assurance business will just keep growing, for the simple reason that the more progress is made in technology and IT, the more telecommunications companies lose money to all kinds of scam artists, and that’s a fact. CIBC analysts Shaul Eyal and Yair Reiner have placed their faith, as I have, in ECtel’s “Fraud View” fraud management solution for telecommunications operators.

Eyal and Reiner state that ECtel is in the middle of the first part of a cycle that will lead it upward. With its revenue assurance and newer revenue management platforms, one gets the feeling that here is a situation worth joining. I arrived at the conclusion that ECtel had great potential a year and a half ago, when I realized just how widespread online fraud is, and on meeting the company management it was clear to me that these were serious people. I believe that the big business will come ECtel’s way from the end of 2007 onwards, as digital home networks begin to take shape. By then, the efficiency and savings that the company’s solutions offer will be just as important as the revenue it records. Naor will find himself with the big break that the company is waiting for, once that happens.

ECTX 1-yr chart

Published originally by Globes [online], Israel business news - www.globes.co.il
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.