Must read report on 4G play VELA.....Recall 25%

Investor Alert: VelaTel Global Communications: After $300 Million Education…Redemption?

As many of your know NBT (and in my past life with ChangeWave Research) has followed and endorsed VelaTel Global Communications (VELA) as an undervalued pure play on the global move to 4G-LTE networks in emerging markets.

For much of this time VELA has been a work in progress…mostly with NO progress and lots of market capital destruction. Cumulatively, VELA has spent about $300 million to come up with a

·        Business strategy that works

·        Strategic acquisitions that are in fact strategic and accretive

·        Positive cash flow positive operations

·        20-50% CAGR for its various 4G-LTE operations

Based on my lengthy interview and meeting with CEO George Alvarez, I can report the following:

1.      The NOW have a business strategy that works —they are now an experienced and profitable Mobile Virtual Network operator (MVNO) that brings highly competitive 4G MVNO technology and operating success (via their China Motion acquisition ) to both Honk Kong, Taiwan and the PRC (China).  MVNO is a fancy term for buying bulk wholesale minutes from incumbent mobile carriers (like Virgin Mobile, Boost Mobile in the US) and reselling them in various consumer and business plans at a retail mark-up.

The MVNO strategy WORKS—it’s much less capital intensive and NOW they have the marketing and in-country marketing operation they can replicate in OTHER regions. For instance…NOW VELA will take their MVNO operating and marketing skills and create B2B and B2C MVNOs for their two 4G network development deals with $billion+ Chinese State Owned Enterprises (SOEs) NGSN and China Aerospace. THOSE MVNOs will be profitable and accretive to VELA from the get go—with little capital required.

In their old plan they would be spending tens of $millions on network equipment with ZTE…and cash flow would be years away.

MOST important—China Motion’s MVNO license is a country wide concession—most MVNOs are a carrier concession that puts the MVNO at mercy of the carrier. As a country concession, China Mobile is the only non-PRC carrier that has the right to negotiate with all the major carriers in Hong Kong/PRC and Taiwan—and issue dual number SIM cards to their users so they have both a Hong Kong and PRC mobile number.

With the PRC announcing 6 new MVNO licenses in order to bring real competition into the mobile wireless space , China Motion is in perfect position to win ONE of these national MVNO concessions. They have proven and tested MVNO customer service/back office systems and mobile carrier relations ALREADY in China…they have 10 years of successful MVNO operations and the unique ability to issue mobile numbers for users in both China and Hong Kong…a MASSIVE cost savings for business people who travel.

In short… the China Motion acquisition turns the VELA stock from an already MASSIVELY undervalue stock (based on normal multiples for MVNOs for cash flow/revenues or simply subscribers) to a stock with a LOTTERY ticket like upside should they win one of the national PRC MVNO licenses.

We call that “optionality”—while getting a stock that should trade at .40-50 cents JUST on its private market value—with the PRC MVNO licenses up for grabs (and considering China Motion’s long term track record operating a licensed MVNO concession in Hong Kong) we get a lottery like 50-100X upside should they win a national MVNO license .

2.      Their recent acquisitions are now in fact strategic and accretive —VELA purchased China Motion Inc. for $1.6M cash yet with $1 million of cash in its bank, $150-200K a month in free cash flow and a VERY re-financeable purchase note of $4.8M note which expires in six months. More importantly…China Motion has VERY real 25-50% revenue growth potential based on a $2M upgrade of its network operating center to 4G-LTE that their partner ZTE Corporation will finance 85%.  The Zapna subsidiary…which is really just another form of MVNO with its SIM card overlays that add another number to your mobile phone or device to save up to 90% on voice and data roaming…is also cash flow positive this year as well.

3.      VELA itself is now cash flow positive —and will provide investors an updated pro-forma of operations that will give us 2013-2018 cash flows and revenue projections reportedly this week.

a.      ONE version is without sales of VN Tech fuel cells to ZTE in 2013…the other version will include sales. VN Tech is waiting for PRC financing terms for the PRC has mandated replacement upgrades to China’s 1.3 million cell towers to renewable fuel cell technology from the now ancient lead-acid battery technology or diesel  the ( similar to India’s mandate ). All hydrogen fuel cell energy systems for the telecom industry has to be certified by the Hydrogen Fuel Cell Energy Committee before MIIT will approve it for use in the China market. VN Tech’s President Luo is a founding member and facilitator on this committee.

According to CEO Alvarez, 2013 pro-forma looks like $25 million in full consolidate revenue and $3-$4 million in positive cash flow/EBITDA. He also promises to make announcements on sales of OTHER VelaTel operations that don’t fit their new business model and strategy.

Bottom-line: The financial numbers we expect from the update VELA pro-formas based on already announced numbers from their acquisitions translate to a $40-$50 million private company market cap and at least 20-30 cents a share on 177 million shares outstanding.

THEN add in 25% CAGR from the MVNO and VN Tech operations and 40-50 cents per share makes sense in 2014 vs. comparable mobile telecom values.

At 4 cents today…VELA is the bargain of 2013.

b.      We expect VN Tech to close 400-500 unit sales (at @$14,000 apiece) in 2013 based on the PRC mandates…that would add  another $5-$6 million in sales at 35%ish net profit margins… or another 5-6 cents in valuation

VelaTel Has Re-Hired NBT Capital Markets for Shareholder Acquisition Services

We are proud to announce that NBT will again be retained to bring the VELA story to the retail and institutional investor world with our shareholder acquisition program.  We are excited to re-join VELA and bring this story of “redemption” to a whole new generation of emerging growth investors JUST AS VELA hits the inflection point in revenues and cash flow.

We are working on new equity research report…and with the expected updates on pro-forma revenues and cash flow we will produce new “sum of the parts” valuation.

Needless to say…buying VELA shares under 5-6 cents represents the highest upside potential in the mobile 4G LTE space we know of…and hope you can buy shares down at the current valuation.

Tobin Smith

Disclosure: NBT and its affiliates own or control 2.5 million shares of VELA and anticipate compensation for future shareholder acquisition and financial consulting services for VELA.