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Wednesday, March 20, 2013

MTSL Dip Is A Buying Opportunity

MER Telemanagement Solutions Ltd. (NASDAQ Capital Market: MTSL), a global provider of Mobile Virtual Network Enabler (MVNE), Mobile Money and telecommunications expense management (TEM) solutions and services, yesterday announced its financial results for the fourth quarter and the year ended December 31, 2012.

For the quarter MTSL did $0.20 EPS for the quarter. This represents a run rate of $0.80 EPS on an annualized basis. The Company has grown operating income 410% in 2012 over 2011.

The also announced that their largest customer will not renew in 2014. The market, in my opinion, greatly over-reacted to this fact. While this represents a material amount of revenue at approximately 25%, there are several mitigating factors. If MTSL were not to grow revenues at all in 2013, they would have an EPS run rate of $0.80. If nothing changed then in 2014 they would have an EPS run rate of $0.60. However they have told us in the press release that they are diligently working to take advantage of new opportunities and sign new contracts. MTSL has all of 2013 to replace the lost revenue from this contract.

They are entering into new growth areas like Mobile banking. They are the leader in servicing the growing mobile virtual network industry. This is a cloud based software company that provides ROI to the users of their software. All of these areas typcially generate P/E's of 10+.

Two similar companies are Tangoe Inc. (TNGO) and Veramark Technologies Inc. (VERA). VERA just reported $0.07 EPS for the year and trades at a 10 PE. TNGO will do approxiamtely $0.70 EPS for the year and trades at a PE of 17.

So at a minimum, if you took an unrealistic conservative approach and did not think MTSL will grow anymore, than at a 10 PE on the $0.60 2014 EPS this should be a $6 stock. As MTSL signs new business and replaces the lost revenue, they will grow EPS back to the $0.80+ range and deserve an even higher valuation. I believe this stock will bounce back to the $4-$6 range as these facts are realized and short sellers cover.

The markets over-reaction to the MTSL announcement presents an opportunity to participate in the rebound once these numbers are realized and as MTSL coninues to sign new contracts.

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