US techies take stake in undervalued Vislink

High-tech broadcast and surveillance equipment maker may have had a mixed first half, but business is already picking up in key areas and a big American tech outfit has just taken a stake in the company.

Currencies clearly had an impact on these numbers. Adjusted operating profit fell by 15% to £1.7 million, but was actually up 3% at constant currency on revenue down 3% at £27.1 million. Vislink's software business is doing better-than-expected, too, and should keep growing in the second half, say management.

Unfortunately, the hardware division has suffered from a shaky broadcast market and delays to important surveillance contracts. Yet, even here, a restructuring should begin to deliver big cost savings this year. And the group order book picked up during the second quarter, taking the order-to-sales ratio to over one.

But perhaps more importantly, Vislink has agreed a strategic partnership with $600 million (£363.06 million) US firm Harmonic Inc. As part of the deal, the Americans are placing an initial £2 million order with Vislink's US unit Pebble Beach, which develops software used by TV broadcasters and cable and satellite operators. It's also likely to open up far more channels to market for the UK company's software. Harmonic has also bought 4 million Vislink shares at 50p each, giving it a 3.26% stake.

This big order, closing some of the delayed surveillance contracts and savings from the cost-cutting programme underpin N+1 Singer's full-year forecasts. The broker expects full-year adjusted pre-tax profit of £6.6 million, giving adjusted earnings per share (EPS) of 3.9p. That rises to £7.4 million and 4.3p in 2015. At 45p, Vislink shares trade on just 11.5 times forward earnings, dropping to less than 10.5 next year.

Interestingly, management still reckons it's on track to hit its own full-year target for £8m of adjusted operating profit in 2014 on £80 million of sales. N+1 Singer forecasts £6.8 million and sales of £68 million in 2014, so top brass clearly have something up their sleeve and could spring a surprise.

Analysts at research house Edison still see fair value at 70p.

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