Why I think Netcomm Wireless Ltd has great growth prospects

Following the release of the company's annual report, shares in Netcomm Wireless Ltd  (ASX:NTC) have climbed over 17% this week.

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It has been a rollercoaster year for Netcomm Wireless Ltd (ASX: NTC) with the share price seeming to be on a continuous slide since a 52-week high of $2.85 in late November last year. It only recently recovered from a 52-week low of $1.03 after reporting in September a net loss of $1.79 million for the year.  

With an impressive CV Netcomm Ltd first listed on the ASX in 1997. A small team from Netcomm and Banksia Technologies developed Australia's first dial up modem in 1983.

Since then the company evolved into Netcomm Wireless Ltd and now focusses on providing Fixed Wireless broadband, wireless Machine-to-Machine (M2M)/Industrial IoT (Internet of Things), and Fibre and Cable to the distribution point (FTTdp / CTTdp) technologies that underpin our increasingly connected world.

The customers of Netcomm Wireless span from government, network operators, internet service providers, systems integrators and value add distributors that connect government, enterprise, and end-users worldwide.  

The last year has not been all doom and gloom with the company crystallising some significant and lucrative contracts including support to AT&T in the United States and the Australian Government's National Broadband Network (NBN) company.  

AT&T enlisted the company's services to supply outdoor wireless antennas to bring fixed wireless connectivity to select rural and underserved premises across 18 states of the US.  

The agreement with the National Broadband Company saw Netcomm Wireless enlisted to supply distribution point units (DPUs) and installation services during the continued rollout of the government's fibre-to-the-curb services for Australian households.  

This agreement has however recently come into focus for unfavourable reasons with competitor Corning Optical Communications claiming: "NetComm's Distribution Point Unit (DPU) NDD-4100 (used in fibre-tothe-curb broadband applications) infringes an Australian Innovation Patent recently obtained by Corning." 

Netcomm Wireless has clearly stated that "the claims made by Corning are lacking merit, and we will vigorously defend the claims made against it."

Netcomm Wireless also informed shareholders that "level of potential damages are not regarded as material by NetComm Wireless, this disclosure has been made to ensure the market is fully informed. NetComm Wireless will keep the market informed of any significant developments.".  

In terms of performance the company highlighted some promising figures achieving record revenue up 26% to $107.6 million. Gross margins increased 2.8% to 34.5% and operating cash inflow came in at $10.2 million.

Earnings Before Interest and Tax (EBITDA) however retraced 41% to $3.6 million. The company has invested heavily ($23 million) in expanding staff, skills and infrastructure resources, impacting heavily on the company's bottom line.  

Whilst remaining focused on its core ANZ business, the report states the company's growth strategy is focusing on three key pillars; European/UK and North American market expansion, building customer solutions at scale for its Tier 1 and Tier 2 customers, and bespoke solutions where the company can provide unique value-adding propositions to select customers.  

Should you invest?  

Whilst Netcomm Wireless has faced some challenges during the year, strategic investment in staff, skills and infrastructure should position the company well to deliver into 2018 and the coming years.

A diversified client book and already secured contracts should support continued double-digit revenue growth. With the continued focus on growth, innovation and a strong balance sheet showing $22.1 million in cash and no debt investors could do much worse than looking to build a position in Netcomm Wireless at today's prices.  

Motley Fool contributor Tim Wilks has no financial interest in any company mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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