Pace in talks to launch service in India

The Saltaire-based digital set top box maker is talking to an Indian pay-television provider about a key contract.

Pace is understood to be working on a set top box for Tata Sky, a joint venture between Indian conglomerate Tata and News International-owned Star TV.

Broker Seymour Pierce said this should serve as a reminder to the market that there are new and growing markets for the products that Pace supplies.

"We continue to regard the shares as undervalued," said analysts at Seymour Pierce.

They repeated their 'buy' rating and a 253p price target for the company's shares.

The group's shares closed down x per cent last night, a fall of xp to xp.

The Indian deal is understood to be for the design of a set-top box that will offer similar functions to the Sky Plus box, giving viewers the ability to pause programmes and rewind live TV.

Analyst Charles Brennan at Royal Bank of Scotland said: "This looks consistent with the Tata website which indicates the technology is based on BSkyB in the UK.

"It is obviously encouraging to see Pace winning new contracts and expanding its geographical reach. However, the big unknown here is average selling prices where Tata is offering standard definition products at roughly 13.50 and HD products at roughly 35."

He added that Pace has shipped high volume products at lower gross margins that still earn good returns on investment, for example the Comcast DTA boxes.

"Until these dynamics are known it is hard to factor too much into forecasts," he concluded, retaining his 'buy' recommendation on the shares.

Pace recently completed its 301m acquisition of US broadband firm 2Wire.

The group said its immediate focus is on integrating the US company.

The firm overtook Motorola as the world's biggest set-top box maker earlier this year, and the 2Wire deal takes it beyond its satellite and cable roots into the fast-growing telecoms business.

Pace said it hopes to make $30m "synergies" from the deal.

It added that sales of set top boxes are going to plan as its customers, which include Comcast and DirecTV, continue to grow their high-definition services.