We take a lot for granted in the modern world. We assume that the electricity will always stay on, traffic lights will always work, natural gas and oil will be piped to our homes and refineries, air traffic control will get us to our destination safely, and so on. And without computers, these modern miracles could never happen.
Who runs those computers?
If you live in southern Europe, China, and a growing number of other regions around the globe, chances are good that Spanish IT outsourcer Telvent (NASDAQ:TLVT) is running the critical real-time systems that make your world work.
The wired world
Unlike other computer outsourcing giants such as Accenture (NYSE:ACN), EDS (NYSE:EDS), Affiliated Computer Services (NYSE:ACS), and even the consulting arm of IT behemoth IBM (NYSE:IBM), Telvent has a specific focus on what it calls "mission-critical, real-time control and information management."
Telvent doesn't just process payrolls every two weeks, manage customer contact systems, or help your company close its books every quarter. Those operations have to be exactly right, every second of every day. And Telvent makes sure that happens all over the world.
As the IT subsidiary of Spain's Abengoa group, Telvent has 40 years of experience in "industrial supervisory control and business process management systems." Abengoa includes a diversified set of industrial and IT companies that focus on sustainable development projects and infrastructure in areas ranging from solar to waste management to conventional power plants and grids. Telvent's four main divisions are energy, traffic, transport, and environmental management. The company also works in health care, public administration, and other services.
I was surprised that I had never heard of Telvent before. It employs more than 3,400 professionals in operations and development centers ranging from Spain to Colorado to Calgary to Mexico to Beijing. It reminds me of Australia's Transfield Services (OTC BB: TFFTF.PK), which I profiled here last month. Telvent works in the same "inevitable" sectors -- niches that grow as the world's economies grow, including power, traffic, water, and the like.
Key markets
In addition to servicing sectors with constant demand growth, Telvent has aimed its growth at key developing economies. It first started operations in China in 1990 and bought 80% of Beijing Blue Shield (no relation to the U.S. health insurer) in April 2006, in a move that opened the door to traffic control, airport and seaport security operations, and utility network controls all over the country. The growth potential is virtually unlimited.
In Latin America, Telvent has targeted state-owned oil giants such as Venezuela's PDVSA, Brazil's Petrobras (NYSE:PBR), and Mexico's PEMEX. As a result, Telvent now manages a staggering 70% of the movement of hydrocarbons in the oil and gas pipelines of Latin America. It also recently signed an additional 9 million euro ($12 million) contract with PEMEX to provide the management platform for PEMEX's petroleum storage and distribution depots.
Telvent has a substantial profile in the United States, too. It provides geographic information systems to more than 100 utilities with a complete solution for managing complex electric, gas, water, and waste-disposal networks. It works with 13 of the 15 largest North American oil and gas companies and controls more than 100,000 miles of oil and gas pipelines. And its Terminal Remote Units manage power at more than 14,000 substations around the country, including the entire New York subway system. The list of projects and deals goes on and on.
Ah, but is Telvent a decent stock to invest in?
By the numbers
Telvent has that sweet combination of value and growth that often produces great returns in long-term investments. Since 2003, sales more than doubled from $292 million to $670 million in 2006. Earnings per share tripled from $0.31 to $0.99. Book value doubled to $8 per share, with cash flow per share going from $0.70 in 2003 to $1.45 in 2006.
Telvent is geographically diversified, too, with more than half of revenues coming from Europe, 19% from Latin America, 17% from North America, and the rest from China and the Middle East. Energy is its largest sector, at 45% of sales, and transport is a close second at 36%.
Margin of safety
Being able to buy Telvent at less than one times sales today represents a substantial margin of safety when you consider that the company has consistently grown sales at more than 20% per annum. Even while they grew, gross margins expanded from the high teens to 22%. Net margins and return on equity also grew steadily.
Telvent raised 2007 earnings guidance to $1.24-$1.29 per share early in March. If we apply the industry standard P/E at 19, the share price would be $25, a 30% gain from today's $19 per share. Reuters projects $1.49 in per-share earnings in 2008.
The more I read about Telvent's growing global reach in real-time control systems, the more confident I am of a handsome payoff in the coming years. With proven growth in hot sectors and countries, Telvent and its products make for an appealing combination.
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Accenture is a Motley Fool Inside Value recommendation.
Fool contributor Dale Baker, a private-client portfolio manager and former U.S. diplomat with extensive experience in Europe and Africa, owns Telvent shares. He welcomes your questions or comments. The Motley Fool has a disclosure policy.
