Business Overview
MTI Wireless Edge Ltd. (MWE), a subsidiary of M.T.I Computers and Software Services, established in the year 1972. It is engaged in the design, manufacture and marketing of antennas and accessories for commercial and military applications. The company's product offerings include wireless networking antennas, radio-frequency identification (RFID) antennas and military antennas for air, naval and submarine, and ground army. The company operates in Israel, Switzerland, the US, Australia, South Africa, Russia, China and India. It operates across four core divisions: Antenna Division, Aerostat Operation Division, Water Control & Management Division and RF and Microwave Representative and Consultation Division.

Recent News
On 10^th February 2020, the company announced that the St Petersburg office of MTI Summit had secured an order for the supply of radio frequency components worth around US$1.5 million for delivery in 2020 from a Russian customer.

Financial Highlights - Nine months Financial Year 2019 (30^th September 2019, USD, million)

(Source: Interim Report, Company Website)

In the nine months of the fiscal year 2019, the company’s revenue increased by 12 per cent to $29.0m as compared to $25.9m in the nine months ended 30 September 2018. Operating profit during the period increased by 33 per cent to $2.5m against $1.9m during the nine months ended 30 September 2018.  Profit before tax grew by 44 per cent to $2.43m during the period against $1.7m in the same period last year. Earnings per share increased 30 per cent to 2.36 US cents in nine months FY 2019 versus 1.8 US cents in the nine months ended 30 September 2018. Cash flow from operations increased 155% year-on-year to $3.96m (nine months ended 30 September 2018: $1.55m), providing a net cash balance of $6.2m on 30 September 2019.

Share Price Performance

Daily Chart as on 12^thFebruary 2020, before the market closed (Source: Thomson Reuters)

On February 12^th, 2020, MTI Wireless Edge Ltd shares were trading at GBX 40.15 at the time of writing before the market close (at 11:13 AM GMT), down with 4.4 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 43/GBX 19. The stock price has given105.89 per cent returns during the previous year. In the last week, the stock price has given 5.65 per cent returns and now some profit booking is expected in the stock.

Valuation Methodology


Conclusion
The company reported a decent financial performance in the nine months of the fiscal year 2019. However, there are certain principal risks and uncertainties associated with the company business. Fluctuation in foreign exchange rates could affect the profitability of the company. Liquidity risk i.e. insufficient liquidity could affect the operations and fulfilment of the obligations of the company. Credit risk is also associated with the Group’s business which could affect the business performance of the company. Failure in cybersecurity and critical data breach could affect the operations of the company. The geopolitical and economic uncertainties in the United Kingdom as well as abroad has caused significant volatility in the market.

Presently, the company is trading near the 52-week high, raising doubts at its upside potential at the current price level.

Based on the headwinds and the valuation methodology as done above, we have given a “Sell” recommendation at the current price of GBX 41.90 (as on 12th February 2020 before the market close at 12:32 PM GMT), based on 17.10x NTM Price/Earnings multiple (approx.) on FY20E earnings per share (approx.).
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.
*Currency exchange rate taken for 1 US Dollar = 0.77 GBP.

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