HP: Breaking into Fraud Market Through ECtel?
Written by: Aaron Katsman | June 5, 2007
By Aaron Katsman
www.IsraelNewsletter.com
Continuing on yesterdays theme of security, it’s no question that homeland security and the war on terror grab all the headlines; but telecom fraud has been estimated to cost operators between 3-8% of annual revenues. Leading the war against this type of fraud is a small Israeli company called ECtel (ECTX). ECtel developed a fraud management solution for fixed line, wireless and next generation communication service providers. They have gained significant traction, and their solutions are deployed at over 75 operators worldwide.
Focusing much of their attention in Eastern Europe, where telecom fraud is a problem that is getting worse by the day, the company looks to be well positioned to profit.
Unfortunately, though, for investors, profit is the name of the game and it’s something ECtel has a problem delivering. Revenues in the 1st quarter fell 46% from comparable quarter in ’06. Orders from the former Soviet Union were slower than anticipated, and a large order from a large existing European customer was delayed. In addition, there was a delay in getting paid from certain projects.
With this financial background, why would an investor bother looking at making an investment in ECtel? The company has cash and cash equivalents of $36.1 million, and the current market cap is about $50 million. This certainly provides a cushion as to how low the stock can drop. More interesting are the rumors I have been hearing from people in the local telecom business. Hewlett- Packard (HPQ) has a similar fraud prevention product, but they are having all kinds of troubles penetrating the market and have only 3 deployments until now. It’s well-known that HP has acquired numerous Israeli companies, so for many reasons, this makes sense. Oracle (ORCL) and IBM, could also be potential suitors as they are always trying to update their product suite, as I mentioned in a previous blog.
Disclosure: Author’s fund has no position in ECTX as of 6/5/07.
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Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
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