Ectel Limited (ECTX) is an Israeli company that develops revenue assurance tools and software for the telecom industry. Simply put, their software helps telcom companies combat the many types of fraud that people use to place free calls and rip off phone and cellular companies. They are one of the few companies that offer this service (most companies do this inhouse, but are far less effective).
Long ago, Ectel was fully owned by a company called ECI Telcom, who spun it off but kept a majority stake throughout the downfall. When they finally sold off most of their share (in 2004) after the telcom downfall, the management changed as well. The new management team included new President and CEO Eitan Naor, a turnaround specialist, along with a new board that was recently appointed, including new Marketing and Sales VPs. Since his appointment, Mr. Naor has turned around the company, increased share price by over 100%, improved cashflows and margins, cut costs, introduced a new product, and secured several new contracts.
Why are we intereseted in Ectel?
* Stock Buyback
* Low Float
* Improving Sector
* Attractive Chart
Stock Buyback
ECtel's Board of Directors Approves Plan to Repurchase up to $15 Million of Outstanding Ordinary Shares
ECtel Ltd. a leading global provider of Integrated Revenue Management(TM) (IRM (TM)) solutions, today announced that its Board of Directors authorized a plan for repurchase of the company's ordinary shares on the open market in an amount in cash of up to $15 million.
Under the repurchase program, share purchases may be made from time to time depending on market conditions, share price, trading volume and other factors. The repurchase program is for one year and may be suspended from time to time or discontinued. The share repurchases will be funded from available working capital.
Under Israeli law, the repurchase is subject to the company obtaining an approval from the Court in Israel, which the company will seek as soon as possible. The company believes that its cash resources, after giving effect to the repurchase, are adequate to allow the company to pursue its objectives.
Low Float
Now the mathematics behind this trade...
$15,000,000 share buyback
Float = 7,370,000
Current Price: $5.12
$15,000,000 / $5.12 = 2,929,687 shares repurchased represents 39.75% of the float being repurchased.
This is your classic quant play!
Improving Sector
The telcom industry is finally starting to generate some cash while still remaining concerned with improving their bottom-line, there should be continued demand for Ectel's tools and software. Ectel has also leveraged its large cash reserve to make several strategic purposes that put it at the head of the revenue assurance market. Overall, Ectel remains undervalued at currenly levels, and should continue its rise throughout 2006 and 2007 barring any industry changes.
Attractive Chart
Ectel appears to be making a short term retracement after testing $5.50 resistance. We expect ECTX to bounce off the 200 day moving average and upsloping trendline support. Furthermore, the approval of Ectel's share buyback by Israeli courts should push share prices upward: "Under Israeli law, the repurchase is subject to the company obtaining an approval from the Court in Israel, which the company will seek as soon as possible."
$5.45 (04/28/06)
