TELEPHONE MAINTENANCE GROUP (TEL): A Telecom Mears Gem

A Maintel-TEL comparison:-

Maintel: 113.5p, market capitalisation £15.34M.
TEL: 3.125p, market capitalisation £2.48m. (79,630,241 shares in issue).
I.e. TEL's market cap. under one sixth of Maintel's.

Maintel turnover £10.77M. (yr. end 31/12/03): price/sales ratio 1.42.
TEL annualised turnover £3.548M. (based on half yr. end 31/1/04): price/sales ratio 0.7.
I.e. TEL's sales valued at under half those of Maintel's.

Maintel are based in London.
TEL are based in the West Midlands (Stoke Prior, Bromsgrove).

From 9/04 TEL prospectus:
"7. Competition
The principal competitors to the Group have historically been large manufacturers/maintainers such as BT, Siemens Plc and Cable & Wireless Plc. These organisations predominantly sell their own branded or manufactured products to business users throughout the UK.
In addition, the Directors believe Maintel Holdings Limited (‘‘Maintel’’), a recognised telephone maintenance provider based in southeast England, to be a competitor to the Group. However, Maintel are not predominantly national and do not provide the range of services that the Company offers."

Maintel are the only competitor mentioned in TEL's prospectus apart from large manufacturers/maintainers. Their apparent focus on the South East should be a key factor in limiting competition with TEL. From TEL website: "We provide a truly national service with clients from Inverness to Southampton and Haverfordwest to Ipswich."

Maintel currently have six vacancies on their website, dated 15/9/04 - 29/11/04.
TEL currently have no vacancies on their website.
TEL have excellent staff retention, and have been able to expand recently with little need for additional staff.

Maintel's pre-tax profit for the year end 31/12/03 was £1.35 million. If there was a full tax charge this would I believe mean earnings of c. £1M. or a bit less, which I believe would put the shares on a historic full year P/E of over 15, at a similar share price to that tipped by the Sunday Telegraph. Pre-tax profit margins were 12.5%.

The names of both companies are based on 'tel' and 'main'!

Judging from TEL's prospectus, it doesn't look like the AIM placing resulted in any placee holding over 3% of the company, and no information is available on holdings of under 3%. The Herald Investment Trust had net assets of over a third of a billion pounds at the end of June, and if it's restricted to a minimum size of investment but a maximum percentage holding in a company, that may well restrict it from investing in a company with a market cap. as small as TEL's.

Overall, Maintel's float will I believe be positive for TEL, hopefully helping in a rerating upwards. The City like to have comparable companies to help value a share, and Maintel looks to be the closest listed company to TEL. And TEL certainly looks cheap in comparison to Maintel.

In addition, Maintel's fundamentals look very encouraging for TEL, showing very positive growth and profit margins. In three years time TEL's turnover could easily be about £10M. like Maintel's now.

B.F.