Milwaukee Journal Sentinel Investment Trends column
Feb 03, 2013 (Milwaukee Journal Sentinel - McClatchy-Tribune Information Services via COMTEX) --
No matter where you go on the globe, demand for broadband Internet is increasing.
The newest frontiers are on water and in the air, where captive ship and airline passengers and workers looking to occupy their time often have greater appetites for online fare than they do on land, said Rob Damron, co-portfolio manager for growth strategies at 1492 Capital Management LLC in Milwaukee.
Damron identified three companies that are in the heart of this trend.
"What we like about all these business models is that they generate predictable, high margin, recurring revenue streams in an economy that's been anything but predictable," Damron said.
All of these companies provide broadband Internet access via satellite technology.
KVH Industries Inc. (KVHI, $14.66), Middletown, R.I., provides remote communications services for maritime and defense industry customers.
KVH gets about half its revenue from selling Internet service to ships, yachts and work boats, a business that has been growing faster with higher margins, Damron said. The other half of sales are in the defense industry.
The biggest risk with the company is the possibility of government military spending cuts, but Damron believes the potential growth in broadband Internet services to the maritime industry will help drive the shares higher.
KVH shares have traded in a 52-week range of $8.51 to $14.80 and could trade as high as $20 in the next 12 months, he said.
RigNet Inc. (RNET, $22.00), Houston, provides remote communications services for the oil and gas industry. The company's services are used for corporate communications with the rig as well as for providing broadband, streaming and live TV services to workers on the rig.
Damron expects "significant" growth in broadband Internet on oil and gas rigs, particularly with oil drilling activity increasing around the world.
The biggest risks with the company are the chance that oil prices might fall and fewer rigs would be in use, or that there might be an oil rig blowup, he said.
RigNet shares are trading in a 52-week range of $14.91 to $22.16.
Global Eagle Entertainment Inc. (ENT, $9.50), Los Angeles, which until last week was Golden Eagle Acquisition Corp. (EAGL), went public in 2011 with plans to use the $190 million it raised in the offering to acquire companies.
On Friday, Global Eagle completed its purchase of Row 44 Inc. and an 86% stake in Advanced Inflight Alliance AG in a deal valued at $430 million. The deal created the largest entertainment and connectivity platform for the airline industry and resulted in the name change.
Global Eagle has a new contract with Southwest Airlines and good long-term growth potential with international airlines, Damron said. Customers pay a set fee for wireless access, and can choose to buy movies or digital games.
Global Eagle issued about 45 million shares to fund the acquisitions, leaving the company with the $190 million of public offering proceeds, Damron said.
"This will be a good company with a solid footing after these two acquisitions, then the company will have a strong balance sheet to use to consolidate this market even further," he said.
Global Eagle's biggest competitor is a privately held company called Gogo LLC, but that company's offerings are limited to domestic airlines because it uses a ground-based cellular network rather than satellite technology, Damron said.
The biggest risk with the company is the possibility Global Eagle might encounter glitches in integrating the two companies it acquired, or fail to take advantage of all the cross-selling opportunities, he said.
Global Eagle's predecessor company traded in a 52-week range of $9.71 to $10.27. The two acquisitions are expected to drive up the shares, which could trade as high as $16 over the next 12 months, Damron said.
The Journal Sentinel focuses on one Wisconsin money manager or analyst in this weekly feature, looking at a trend that helps investment pros make their decisions.
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