The Curious Case of Teledata Ltd

About Teledata Ltd
Teledata is a leading communications services company, unique for the depth of our capabilities and the dedication of our people. Our people are experts in the dynamic field of communications technology and excel at delivering customised communications services and solutions to our customers.

Founded in May 1976, we have grown to be a regional company with offices in 8 countries and customers in 14 countries throughout the Asia Pacific region. Teledata works with customers from all industries and provide systems and services that are relevant to companies from the largest enterprises and telecommunication carriers down to smaller enterprises. Some of those customers have been with us for almost three decades since Teledata first started operation.

Teledata is listed on the main board of the Stock Exchange of Singapore and we have achieved ISO 9001:2000 certification.

Teledata’s Run-Up
Teledata’s stock price started moving on the 23rd Oct, opening at 0.015 and closing at 0.02. Currently as of 17th Dec, the stock price closed at 0.075, meaning a 275% gain from any investment made at 0.02.

How is the Daily Operations affected by the Stock Price?
Essentially, the ability for a business to operate as a going concern is not affected by the stock price. Rise and falls of the stock price does not directly bring cash into the company.

So what is the stock price for? It’s an indicator of how much one would pay for a share of the company. As the company benefits, so does its investors due to dividend payouts for example.

Even for companies that do not give out dividends, investors may still invest in the company as it may be undervalued, or the company’s growth prospects are higher as compared to other companies/industries.

Furthermore, as companies try to raise capital, instead of taking on more debt, they may issue rights to raise new capital. Rights are usually priced at a discount to the current market price, and a company that performs well is able to raise more capital through the issue of rights. During the issue of rights, the number of subscribers would naturally be all the shareholders to prevent their holdings from diluting.

For a simplistic view,

Amount of capital to be raised = price of newly issued shares x number of shares issued

A higher price of newly issued shares, which is determined at a discount of the current stock price increases the amount of capital that can be raised. Although an increase in the number of shares issued can bring about the same capital if the price of the newly issued shares are low, the current shareholders may not subscribe to the shares and instead sell off their holdings due to excess dilution. Excess dilution also results in share prices hitting rock bottom.

The Rise in Teledata’s Stock Price
The rise in Teledata’s stock price has little to do with fundamentals. Looking at their financial statements, Teledata has been in the red since 2002 (with the exception of 2006). In their latest half yearly unaudited financial statement, Teledata posted a larger loss as compared to 1H2008. All signs point to a company to avoid.

So what are the possible reasons for Teledata’s rise? There have been murmurings about a reverse takeover of Teledata, thus a major company that is buying into Teledata, pushing up the stock price. All these are rumours, and unless you are an insider, it is difficult to know the exact details surrounding the rise in the stock price.

In the SGX query on the 15th of Dec, Teledata’s response is that it is not aware of any information that was not previously announced. However, in this run up, Mertius Resources Ltd has been purchasing shares off the open market.

Fundamental Analysis and Reverse Takeovers
Companies with a low share price and relatively low float are prime targets for takeovers. In value investing and growth investing, we do not give absolute attention to the companies that are prime targets for these takeovers. Instead we find undervalued companies and/or project their growth possibilities.

I am not vested in Teledata, and its current shareholders may call me an idiot, but I don’t want to be the last man standing if the reverse takeover is just a rumour or if it falls through. The shareholders may have the last laugh, as we can all remember the case about Wilmar’s reverse takeover.

Good luck to the shareholders of Teledata Ltd. I hope that Teledata proves me wrong as it would be a learning experience for me. And please don’t be the last man standing.