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01-Apr-2011
TRANSACTION SOLUTIONS INTERNATIONAL & SOUTHERN CROSS ELECTRICAL
Cashing in on India
ASX Code TSN, SXE
Transaction Solutions International (TSN) has been overlooked by many investors with a market cap of $48 million but is managing to gain a foothold in that other booming Asian giant, India.

Its business is servicing the growing demand for ATMs required by Indian banks and it has the sort of problems that companies little and large want: managing growth.

“The numbers the Indian banks are talking are crazy...asking if we can put in 1000 or 2000 ATMs right now,” says the company's chief executive, Gary Foster. “it's a tough thing to deal with.”


The banks are not so keen to install their own ATMs because the service is free for consumers (as it is in most markets outside of Australia).

TSN had been in a trading halt as it scrambles to raise about $7.5 million from the equity markets in order to fund the purchase of more ATMs. Its shares today were down 1/10th of a one cent to 3.2 cents in morning trade.

Right now it has 500 in India and it needs the money to get to 1000 by the end of the year.

The company has ambitions to reach 6000 machines, but Foster says that once the company reaches 1000 machines it will not require any more equity capital because it will have achieved that nirvana for small companies: scale.

Petra Capital forecasts that revenue will increase from $5.4 million in fiscal 2011 to a staggering $91.5 million in 2015. At 4 cents, its price-to-earnings multiple for fiscal 2012 is about 20 times, but this quickly reduces to under 10 the following year.

ATMs are a cheap method for banks to gain access to companies in a country that eager to promote its payment system. According to a 2007 inquiry by the Indian finance ministry, only 31.5 million Indians (around 2.5 per cent of the population) pay tax.

Transaction Solutions might be small, but it's market position couldn't be better.

Unsung hero (or not)

Resource Equipment (RQL), a company we have mentioned before in this column hit the world news last week with Fox News sending a headline report: GIANT WATER CANNON ARRIVES TO HELP BATTLE JAPAN NUKE CRISIS.

The bulletin said that it was delivered by the Australian government, but it showed Resource Equipment's brand “REL” on THE GIANT WATER CANNON arriving in Fukushima.

The company has also been instrumental in assisting mining companies to pump water out of their mines in the aftermath of the floods in Queensland.

Before you jump to the conclusion that the company is a charity, all its equipment has been rented out. In the case of the Japanese disaster, it was the giant US contractor Bechtel. It provides water pumps to many of the big miners, including BHP Billiton, Rio Tinto, Anglo American, Xstrata and Consolidated Minerals, according to chief executive Jamie Cullen.

Cullen is keen to emphasise that profit growth is not reliant on disasters or the weather, but on the increasing mining activities of the big boys:

“The bigger the hole, the greater the likelihood of water issues,” he says.

At 66 cents Resource Equipment has a market cap of $150 million and many small cap fundies are buying the story. Trading on a PE of 10 times for fiscal 2012, RBS Morgans rates the stock a "buy" and has a target price of 88 cents.

Resource shares were up 2 cents, or 3 per cent, to 68 cents today.

Charity might not be Resource Equipment's priority, but growth definitely is.

Growing up

Southern Cross Electrical (SXE) has been going through some problems common to companies that are growing up.

This company installs electricals into massive mining projects such as Rio Tinto's and BHP Billiton's in the Pilbara region of Western Australia and Woodside Petroleum's offshore gas project, Pluto.

One step it made in March was for its founder Frank Tomasi stepping down from the chairman's role in March. He still owns just under 50 per cent and he's not exiting the board, but at least it's an acknowledgement that he wants new boss, Simon High to get on with the job, unhindered.

A good thing too, because High's background is in oil and gas, where the company needs all the help it can get. The Woodside project generated $60 million in revenues (its annual turnover is currently about $100 million). The company got caught when the project was delayed and costs blew out. As a result Southern Cross is not expected to make a profit this year.

“We're transitioning from being a lump-sum contractor to working on a schedule of rates, which is where you need better systems to manage expenditure and change,” says High.

Your columnist has a feeling that if High is left to do the job, the company can more than double its revenues in the space of two years - which analysts are predicting (and High says he's comfortable with).

At $1.05, as it was trading today, Southern Cross has a market cap of $130 million and trades on a fiscal 2002 multiple of just over 11 times.

One's left with a feeling that the company's growth spurt will not be without problems, but it's definitely one to watch.

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