BUSINESS MATTERS
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.
Comms Index (16th June closing prices) Adept Telecom
Alternative Networks BT Group
C&W Worldwide COLT Telecom Daisy Group
he last month has been notable for very strong share price performances by B2B telecoms resellers and network operators, supported by generally better than expected results and continued private equity interest in the sector, as demonstrated by Vitruvian backing an MBO of Unicom. In terms of share price performances, Alternative Networks (+17%), Daisy (+18%), Kcom (+24%), TalkTalk (+16%) and Telecom Plus (+29%) all enjoyed strong performances, despite weak equity markets (the FTSE was down 2.8%). All but Daisy reported results during the month, with all turning in better than expected profitability.
Alternative Networks and Telecom Plus achieved stronger than expected organic revenue and profitability growth, while Kcom and TalkTalk registered better than expected profitability despite revenue pressures. Alternative registered 25% growth in revenues and EBITDA to £59m and £7.5m for the half year, benefiting from last October’s acquisition of Scalable Communications as well as 5% underlying organic growth. Multi-utility reseller Telecom Plus grew revenues 13.5% and EBITDA 51.5% to £419m and £27m for the full year, and also signed an improved supply agreement with nPower, which will free up working capital to reinvest in marketing.
Hosting and Fixed Line peer group share price performance Share price
MKt cap £m 37.0
284.3 197.4 49.5
144.4 117.0
Iomart 92.5 Kcom 75.5 Maintel Holdings Pinnacle Telecom TalkTalk Telecom
248.5 0.4
149.5
Telecity 548.0 Telecom Plus Virgin Media Average
FTSE All Share 615.0 1937.0 3001.8 7.8 135.9
15324.5 1327.6 1287.5 311.7 96.1
390.0 26.1 7.7
1366.6 1087.3 428.0
6087.9
Kcom secured 8.8% growth in EBITDA to £76m and a £35m reduction in net debt to £82m on revenues 4.2% lower at £395m for the full year, with the B2B Kcom division being the swing factor. TalkTalk grew revenues a lower than expected 4.7% to £1,765m (all growth due to a full year consolidation of Tiscali), but EBITDA grew 24% to £280m as the company secured cost savings. Even CWW managed to report full year results in line with reduced expectations, with revenues down 0.4% to £2,257m but EBITDA up 9.4% to £455m, though cash flow was again poor.
CWW has since been rumoured to be both bidding for private company 2e2 and looking to sell its Global business. Away from resellers, web hosting and data centre provider Iomart also reported strong full year results, with revenues up 38% to £25.3m and EBITDA more than doubling to £6.6m.
PE interest
Healthy private equity interest in the hosting and fixed line sector shows no sign of letting up, with Vitruvian leading an MBO of B2B reseller Unicom/Universal Utilities, which enjoys some of the highest margins among its reseller peers. In the year to April 2010, Unicom achieved organic revenue growth of 13% to £51m, EBITDA margins of 25.3% and
Share price 1 month -10.8% 17.0% 1.8% 1.5% -3.1% 18.2% 8.0%
23.8% 9.2% -4.7% 15.6% 4.5%
28.7% -0.6% 7.8% -2.8%
The Comms National Awards yet? Visit
www.cnawards.com
Have you entered 52 COMMS DEALER JULY 2011
Sponsors the Hosted/Managed Services Category
www.comms-dealer.com
Share price 3 months 6.5%
37.5% 8.9%
-17.8% 0.6%
32.4% 7.4%
30.0% 25.6% 17.1% 12.4% 16.6% 39.8% 19.0% 16.9% 1.5%
Share price 1 year 76.2%
112.0% 47.7% -39.9% 5.7%
25.8% 57.9% 60.0% 69.6% -4.7% 20.0% 34.1% 90.7% 69.0% 44.6% 11.4%
operating cash flow conversion of 127%. The deal value was rumoured to be approximately £100m, equating to c6-7x FY11’s estimated EBITDA of £15-16m.
Round up
2e2 bid speculation looks like talked-up scuttlebutt Following on from reports that CWW is in talks to acquire 2e2 Group, we did some digging and it felt to us like reports of an imminent bid had been significantly overdone. Speculation about a liquidity event at 2e2 is not really surprising given that Duke Street originally invested in the company in 2006. Indeed, that was a key reason why the story looked credible.
Alternative Networks scales new heights
As trailed in its early April update, B2B telecoms reseller Alternative Networks had a very strong first half with revenues and operating profitability up 24-25%, reflecting good underlying organic growth and a first time contribution from Scalable Communications, whose acquisition really seems to have propelled the group prospects to the next level.
Iomart reports strong results, reiterates M&A ambitions Iomart has slightly exceeded continually upgraded market forecasts for the year to March 2011, with revenues up 38%, EBITDA up 113%, PBT up 618% and operating cash flow up 82%, driven by strong growth in cloud deployments. The management has reiterated its intention to do more M&A, buying companies for c3x EBITDA post synergy against iomart’s 9.6x FY12 multiple.
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
n
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