A Global Technology Play In Old Europe

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

Based in Spain, Telvent Git, S.A. (TLVT) provides information technology services to a wide range of industries including energy, transportation, environment and public administration, as well as Global IT Services. Telvent teams up with companies to make sure traffic lights always work, the electricity stays on, and air traffic control operates safely. Telvent’s more than 3,400 professionals work in operations and development centers ranging from Spain to California, and from Mumbai to Panama.

Here’s why I think Telvent is set to offer our investors solid upside over the coming few months.

First, Telvent is showing remarkable success in drumming up new business. In the last three months alone, Telvent has been awarded a contract to: implement an electronic national ID project for the Spanish government; introduce a traffic management project in India; and upgrade the technological infrastructure for one of Panama’s main electricity companies.

This reflects Telvent’s truly global reach. Telvent has been present in Latin America since 1990, and has experience with projects in Brazil, Venezuela, Mexico and Peru. Telvent also operates traffic management systems in Malaysia, Indonesia, Vietnam and Argentina. In addition, Telvent has been present in China for almost 15 years. Thanks to a recent acquisition, the company now is active in traffic control, airport and seaport security operations, and utility network controls all over the country. Finally, Telvent has a big presence in the United States and was recently awarded a contract with Kinder Morgan — one of the largest energy transportation, storage and distribution companies in North America. Telvent’s Terminal Remote Units even manage the entire New York subway system.

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Second, Telvent’s success is reflected in its increasingly impressive financial results. In the first quarter of 2007, revenues increased 27.3% to EUR 121.4 million. Net income for the first quarter 2007 was EUR 5.1 million, an increase of 8.5% versus EUR 4.7 million reported for the first quarter 2006. Both gross margins and operating margins also improved.

But it is in Telvent’s future bookings where the company really shines. New order bookings in the first quarter of 2007 were EUR 180.7 million, a 25.7% increase from EUR 143.7 million during the same period in 2006. And the company’s pipeline — that is, management’s estimates of real opportunities within the next six to 12 months — is a whopping EUR 1.5 billion. That spells huge upside for the company and the stock.

So buy Telvent (TLVT) at market today, and place your initial stop at $18.50. There are no options on this one. Please note that as a company with a market cap of only $784 million, Telvent is an undiscovered small cap that trades relatively few shares. That means the position may be more volatile than some of our others.

PORTFOLIO UPDATE

Korean Steelmaker Posco (PKX) soared last week, and is now up over 35% since our initial recommendation. The options we recommended just two weeks ago have almost doubled and are up over 95%. Let’s hold on to the stock, but sell half of our options here to book some quick profits.

To make room for Telvent, let’s exit our position in the French ETF (EWQ) for a small gain. The impact of recently elected Nicolas Sarkozy’s reforms in France has yet to kick in, and the turnaround of France will take some time to play out. For those of you who would like to keep your bet on France — which in my view will pan out in the medium term — place a 12% trailing stop on your position.

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