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Telit Communications expects forecast-busting full year after excellent first half

In the company’s interim results, Telit Communications (LON:TCM) chief executive Oozi Cats said the first six months had been excellent in terms of revenues and sales. A 61% jump in first half revenue to US$59.6m led to a dramatic swing back into profitability. H1 net profit was US$1.4m compared to a $2.6m loss in the first six months of 2009.

Telit said that the rest of 2010 looks positive, the company expects to continue its "robust growth" and its full year results are now expected to be ahead of current market expectations.

"The steps we took during the economic downturn in late 2008 and 2009 have put us in a position where we have now returned to our previous robust growth rates and we continue to gain market share”, Oozi Cats commented.

Investors on London’s AIM market welcomed the news, as Telit shares climbed just under 5% in early trading.

In the six months ended 30th June 2010, gross profit rose by 49% to $25.2m (H109: $16.9m), while the gross margin edged lower to 42.2% (H109:45.8%). The first half operating profit was $1.9m (H109: $2.2m loss).

Earnings (Adjusted EBITDA) improved substantially to US$5.4m compared to US$0.8m in the first half of 2009, and basic earnings per share (NYSEARCA:EPS) turned positive to 1.5 cents per share, up from a 5.9 cents loss in H109.

In the wake of the company's improved outlook for the full year, Astaire Securities has upgraded its forecasts.

Telit is now expected to generate revenues of U$131m in 2010, representing a 29.6% increase on previous guidance and year-on-year growth of 47.5%. The broker upped its earnings (adjusted EBITDA) forecast by 47.1% for the full year, Telit is now expected to increase earnings by approx 114% to US$12.5m.

For 2011, it is forecasting 34.1% revenue growth to US$165.0m and earnings to rise by 29.7% to US$20.1m.

“The shift of manufacturing to China has helped offset the reduction in average selling prices and boosted capacity to capitalise on the larger market opportunity,” said David Johnson, Astaire Securities equity analyst.

“With its share of design wins ahead of its current market share, Telit should continue to grow faster than a market forecast 16.7% annual revenue growth over the next five years.”

“Telit is trading on a FY11 PER of 7.1 well below the UK sector average as well as recent sector consolidation that would point to a realistic share price level of c. 95p.”

From an operational perspective, Telit told investors that it continues to look for further improvements.

“We are constantly working on improving our cost base, logistics and purchasing, to achieve and maintain a higher level of profitability in the long run,” Oozi Cats said. 

"We have strengthened our presence in Eastern Europe with the opening of an office in St. Petersburg ... In 2010 we expanded our partner network on a regional scale as well as worldwide, by teaming up with Telco heavyweights Deutsche Telekom, T-Mobile and Orange (France).”

Telit is a wireless machine-to-machine (M2M) communications specialist. The company manufacture the modules which enable wireless devices to communicate with each other, and external networks.

In its results statement, Telit highlighted a recent report by a specialist market researcher. Beecham Research forecasts that the market will see continuous and increasing growth over the coming years.

According to August's Beecham Research report, M2M network connections will reach 75.1 million by 2014, with the number of units to be shipped achieving a CAGR (Compound Annual Growth Rate) of 29.2% during 2009 to 2014.