Buying Vitec Group Plc (LON:VTC)

I bought shares in Vitec Group Plc for reasons mostly contained in yesterday's post. In addition to my previous argument, I also think the Amimon acquisition provides Vitec with a clear competitive advantage in the wireless video market. Amimon is part of Vitec's Creative Solutions division which is its fastest growing and highest margin segment. Other brands in the Creative Solutions division include Teradek which makes transmission systems that contain Amimon's chipsets and SmallHD which makes monitors. The addition of Amimon means that Vitec can now uniquely offer integrated solutions which should have superior design quality compared to rivals. It should also enable Vitec to be first to market with new products.

The market for zero delay wireless video is small and the technology is currently mainly used for producing cinema films. I expect its use will increase over time and Vitec plans to expand into adjacent segments such as live sport and on location broadcasting in the near-term. I can imagine wireless video would also be useful for advertising and online independent content creation (ICC). There are other applications outside of entertainment, for example Amimon's chipsets are currently used in robotic surgery and drones. Security, virtual reality and gaming are other areas which come to mind that could benefit. Even if the wireless video market remains small there is plenty of value in the Amimon acquisition, but I suspect it will grow significantly.

Vitec's is trading on an earnings multiple that implies minimal growth but the company has exceeded these expectations historically. It has evolved into a better business (thanks largely to sound decision making by management) with improving margins and enhanced growth prospects and so the future looks better than the past. In addition, the image capture industry is growing as the internet now enables free distribution of content. Although Vitec operates at the high end of the market, the ballooning of the amateur segment could have positive flow-on effects over time. Overall, it seems to me that the outlook for the company is much improved yet this is not reflected in the share price.

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