Wired to Succeed

08/18/2010 11:21 am EST

Focus: GLOBAL

Ryan Irvine

President, KeyStocks.com

The booming smartphone market augurs well for a Canadian wireless retailer, writes Ryan Irvine in KeyStone’s Small-Cap Stock Report.

Founded in 1963 and headquartered in Burnaby, British Columbia, Glentel (Toronto: GLN) conducts its business through two distinct operating divisions, Retail and Business.

The retail division, doing business as WirelessWave, The Telephone Booth, and WIRELESS etc. provides personal wireless and wired communications products and services, and provides the choice of mobile phone network carriers to its consumers through retail stores in major shopping malls, other retail locations, and Costco Wholesale (Nasdaq: COST) stores in Canada. The business division provides its public and private sector customers with integrated wireless solutions—designing and commissioning wireless networks for applications in the core technical areas of terrestrial radio systems and satellite network services.

We were very happy with the significant growth in net income that Glentel reported over its second quarter of 2010. Retail store sales grew 20% in the quarter, and same-store sales increased 10% compared to the same period last year. (Having said this, the corresponding period of 2009 was a difficult period.)

Smartphones continue to drive customer interest, new activations, and upgrades. Glentel made the new iPhone 4 available in its retail stores nationally on July 30th, which should help boost third-quarter sales.

Glentel’s retail market continues to undergo significant change and growth as new entrant carriers continue to be aggressive in the market place, and it’s anticipated that the incumbent carriers will react with attractive sales and marketing programs.

Consumers have embraced the Android platform, which adds another strong smartphone offering for the retail division. Glentel will be able to offer the iPhone on four carrier brands (Rogers, Bell, Fido, and Virgin) in the third quarter of 2010, compared with two carrier brands (Rogers and Fido) in 2009, which will lead to increased sales opportunities and choice of network for consumers.

Glentel maintains a strong balance sheet with cash and cash equivalents of C$30.6 million, or C$2.77 per share, as of June 30th. On a trailing basis, the company’s price/earnings ratio is in the range of 12x versus its peers, which are currently in the range of 15x.

Using the company’s expected 2010 earnings per share of C$1.70, the price/earnings ratio is reduced to 10x, despite the strong up tick in the company’s shares over a relatively difficult period. The company also pays a decent current dividend of 2.3%.

We continue to believe Glentel operates within a sweet spot in what may be a weaker retail segment in the second half of 2010. (Glentel closed at C$19.50 Tuesday—Editor.)

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