COMPANY NEWS
Comms sector in review T
Philip Carse
Philip Carse, Telecoms Analyst at IS Research, reports on the recent performance of leading companies in the comms space.
he hosting and fixed line peer group experienced a largely uneventful month in most respects, including share price terms. Following a three and 12 month outperformance against the FTSE All Share, the peer group traded roughly in line, at +5.7%, during the last month, with no particularly noteworthy share price performances. However, over the last 12 months several companies have performed very strongly in share price terms, mainly reflecting improved financial prospects: Iomart (+102%), Virgin Media (+73%), Maintel (+71%), Telecom Plus (+62%), Alternative Networks (+52%), BT (+45%) and Adept Telecom (+32%), while only one out of 14 companies (Pinnacle) suffered a share price decline over that period, of 7%.
BT was the only public company reporting results in the last month, results that can be characterised as steady-as-she-goes. Revenues for the third quarter to end December 2010 were down 3% at £5.038bn (a slightly lower decline than last quarter), but profitability and cash flow were up. Global Services achieved cash flow positive a year ahead of plan, and business Retail reported its first revenue growth for two years. Despite the improvements, Global Services still only registered EBITDA of £141m and cash flow of £115m on just under £2bn of revenues.
A couple of private companies gave us insights into good FY10 performance: Onyx grew revenues and EBITDA 30% and 40% to £14.8m and £1.7m respectively, while Gamma Telecom grew EBITDA by over 20% to £8m, despite revenues being down 11% at £125m, due to the loss of the major Tiscali contract in mid 2009.
Following a spate of deals towards the end of last year (for example, Daisy buying SpiriTel and NEG, Bridgepoint investing in Lumison, Iomart buying Titan Europe), M&A activity has been particularly muted since the start of the year.
However, Daisy recently announced the acquisition of O-Bit Telecom, for an undisclosed price, and private equity investors and major strategic buyers (such as Daisy, Alternative Networks and Gamma Telecom) are still looking for deals.
Fund raising Whereas we have seen considerable fund raising by mobile companies since the start of the year, hosting and fixed line company fund raising has been largely absent. However, European data centre provider (and Telecity/Equinix peer) InterXion successfully raised $211m in its US IPO, pricing at the top end of the $11-13 per share price range. Meanwhile, Daisy secured a £40m increase in its bank facility, to £115m, reflecting the increase in underlying EBITDA from the various acquisitions undertaken last year. We estimate that Daisy had used £59m of the existing £75m facility (prior to the O-Bit deal), with the increase thus representing a significant increase in Daisy’s M&A firepower.
Round up
Business Retail and Global Services bright spots in a steady BT Q3
BT has had another steady-as-she- goes quarter, continuing to improve profitability and cash flow despite continued (3%) revenue declines and a fibre-induced 23% increase in capex. Of note were a continued improvement at Global Services (with cash flow break even being bought forward) and Business Retail reporting its first revenue growth (albeit 1%) in two years, driven by IT services and mobility.
AltNet briefs on Scalable, the portal, and sales and marketing Alternative Networks gave a non- financial presentation to analysts last month on its most recent acquisition, Scalable Communications, its upgraded customer portal, and its sales and marketing activities. The presentations highlighted how the Scalable acquisition has
significantly enhanced AltNet’s product portfolio and cross selling opportunities, while the portal is helping win new customers and reducing the sales focus on price.
Sky adds 0.66m comms subscribers and confirms The Cloud purchase BSkyB has reported another bumper quarter, particularly for its comms business, with a record 0.66m new broadband, calls and lines customers. The company has also confirmed the purchase of WiFi hotspot provider The Cloud, which will support its Sky Anywhere offering as well as be an additional service for Sky’s broadband customers. The price mentioned in The Times suggests a double digit EBITDA multiple.
Ofcom squeezes BT on rural wholesale broadband Ofcom has announced proposals to introduce price controls on BT’s wholesale broadband products in areas where BT is the sole or dominant broadband supplier, representing 21.7% of UK premises, following the expiry of a formal BT promise on wholesale pricing. Ofcom is proposing a fairly draconian three year RPI-12.75% mid-point, aided by a proposed significant reduction in BT’s cost of capital used in cost modelling.
Is InTechnology turning a corner? Managed data services provider InTechnology has reported a lacklustre half to September 2010, with revenues, EBITDA and operating cash flow all down on last year. However, revenues were better than the preceding half (2H09/10), ending at least four halves of declines, and the company paints a reasonably confident outlook based on improved products and pricing. With subsidiary Mobile Tornado’s outlook also improving, InTechnology’s finances may be turning a corner.
IS Research publishes www.
megabuyte.com, a company analysis and intelligence service covering over 200 public and private UK technology companies.
philip.carse@
is-research.co.uk
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