At the time of writing the share price momentum is negative within the Vocus and TPG Telecom camp. Over the last 3 months Vocus has gone from $9.00/share down to approximately $6.15 and TPM from $12.50/share to $8.50/share. Part of the weakness has been due to the TPM result which was below expectations, however the market is also concerned about the future growth prospects of these businesses. In particular, the headwinds these businesses face due to increased competition as the Australian government rolls out its high speed national broadband network.
Where to look for growth
The two companies below are growth orientated businesses that are smaller in size to Vocus and TPG Telecom.
Megaport- MP1: Megaport was founded in 2013 with the aim of becoming a global leader in the fast growing elastic interconnection services market. Using Software Defined Networking the Company has developed a platform that provides customers with the ability to provision interconnection services between their network and other networks and cloud providers already connected to the Megaport Fabric. Services can be directly controlled by the customer via a device such as a mobile phone or tablet, their computer or our open API.
Why do we like Megaport: MP1 has completed two highly significant acquisitions which will fast-track its European rollout; signed deals with major data centre operators; and in our view, has capitalised the business sufficiently to see it through to becoming cash generative.
MP1 now has the largest physical footprint and having won the race for coverage should be best placed to attract paying customers which should, in turn, secure marketplace dominance.
We see potential for ongoing strategic deals (sites or acquisitions) to fast-track MP1’s global expansion and the possibility of better-than-expected customer uptake in North America and Europe.
Megaport is still not cash flow positive, and therefore holds a higher degree of risk. Revenue and cash flow generation may not occur as quickly as expected due to slower customer demand for MP1 services. This would lower valuation and create share price weakness.
Superloop-SLC: Superloop has been established to invest in telecommunications infrastructure, with the aim of becoming a leading independent provider of connectivity services in the Asia Pacific region. Specifically, Superloop’s initial focus will be to invest in fibre optic telecommunications infrastructure between locations of high interconnection density (e.g. data centres and submarine cable landing stations) within Australia and Singapore.
Why do we like Superloop-SLC: The BigAir- BGL Acquisition: Superloop has launched a take over offer to acquire BigAir-BGL and this dramatically propels Superloops path to profitability.
BGL acquisition allows Superloop to quickly connect many Australian enterprise buildings onto the Superloop network.
Acquisition allows Superloop to move into regional hubs such as Sunshine Coast and Gold Coast.
Sales – SLC commented in June 2016 that they are doubling their sales force to "close existing opportunities and further build sales pipeline". In their August results they commented that “as utilisation increases, additional revenue translates directly to increased margin and yield”.
- Boh Burima Financial Adviser (Authorised Representative: 000341081) Morgans Financial Limited | ABN 49 010 669 726 | AFSL 235410
