Two Stocks Operating in Communication Services Domain- IMS, SDA

Two Stocks Operating in Communication Services Domain- IMS, SDA

Communications service providers are those companies which are engaged in transporting information electronically. Nowadays, these companies are implementing diverse strategies to take advantage of the opportunities created by the Internet of Things.

On 3 July 2019, the S&P/ASX 200 Communication Services (Sector) index was up by 0.75%. Let us discuss two stocks – Impelus Limited and Speedcast International Limited – which serve as communication service providers in the Australian market.

Impelus Limited

About the Company:

As a customer acquisition engine, Impelus Limited (ASX: IMS) helps businesses in acquiring customers, at scale, through digital platforms and mobile devices. The company is capable of generating high-quality customer leads for its clients across various industries on a pay per lead basis.

 

Recent Update/s:

On 2 July 2019, Impelus Limited provided its shareholders with the market update, under which it gave details related to the financial performance and discipline, operations and outlook of the company.

Financial Performance and Discipline:

  • For 2H FY2019, the company expects the group EBITDA and group performance marketing revenue to improve as compared to 1H FY2019. As a result of the non-inclusion of revenue from Clipp, which was divested in the first half of FY2019, the group revenue is expected to be lower in the second half of FY2019 than the first half.
  • The traditional Australian lead campaign types of the company are yet to recover from the impact of the Royal Commission into Banking and Insurance. However, this loss got balanced with the success of the company’s focus on Premium Lead Generation (PLG) revenue.
  • The UK business of the company continued its profitable performance. Also, the PLG client trials are underway.
  • The board mulls the requirement of cash flow to maximise its growth potential with special emphasis on development expenses for delivering revenue growth.
  • The bank debt declined further in 2H FY2019.

Operations:

The company has made significant investments in its operations to speed up the development of Digital Lead Generation products and technology. IMS has found its Australian business rebuild in sales and lead delivery to be more challenging and slower than expected. Based on the internal product and system review, necessary measures have been identified for increasing the digital lead delivery capacity, aimed at servicing more clients and boosting revenue.

The objectives of the company in line with its strategy consist of strengthening of the platform for revenue generation through the extension of lead generation capacity. The company, through systems automation, intends to increase the scalability as well as cost base efficiency. It also plans to boost marketing return on investment and drive gross profit performance using advanced reporting & analytics and integration of various unlike audience networks as well as data sources.

Outlook:

The company expects expenditures in the digital marketing industry to grow strongly. According to the company, on a global scale, generating leads and return on investment on lead generation are challenging across various business sectors.

The company aims to harness this growth using its products, in addition to agility and technology.

Stock Performance:

The shares of IMS have given a return of – 11.11% in the previous one month. IMS stock last traded on 2 July 2019, closing the day at A$0.008. IMS holds a market capitalisation of A$5.54 million and approximately 692.22 million outstanding shares.

Speedcast International Limited (ASX: SDA)

About the Company:

Speedcast International Limited (ASX: SDA) is known as the largest provider of remote communications as well as Information Technology solutions in the world. The company helps the businesses to operate in the most remote areas of the world. Speedcast is the ideal global partner for those organisations whose operations as well as people depend on remote communications as it brings together best high-speed communication networks along with a collection of networking and application innovations for delivering reliable, superior client experience, anytime and at anyplace.

Recent Update/s:

On 2 July 2019, the company announced that it expects its underlying EBITDA for 1H 2019 to be in the range of US$60 to US$64 million which includes US$8 to US$10 million from the acquisition of Globecomm Systems Inc, which got finalised in December 2018. Further, it also provided its investors with revised underlying EBITDA expectations for the full year 2019 to be in the range of US$140 million to US$150 million.

The revised expectations follow the recent 2019 outlook of the company presented at the annual general meeting, which was held in the month of May 2019. The outlook got influenced due to evolving market conditions along with additional recent commercial developments.

Some of the factors that might influence the 1H 2019 results are:

  • Weaker market conditions in EEM along with the slower application of the existing backlogs.
  • There could be delays to some expected revenue under Phase 2 of the NBN project, as well as lower profitability as additional resources were being added in the second quarter of 2019 in order to make sure that the project gets successfully delivered.
  • There have been continuous technical difficulties which resulted in further delays in the ramp-up of the Carnival contract.
  • Due to delays in government systems integration projects, the company expects a lower EBITDA contribution of US$8 million to US$10 million from Globecomm in the first half. The lower contribution is also likely to get impacted by lower revenue in maritime division and delayed new business wins.

Full Year 2019:

Based on the YTD performance of the company along with the revised 1H 2019 expectations, the company expects underlying EBITDA to be in the range of US$140 million to US$150 million for 2019, compared with its earlier underlying EBITDA guidance of US$160 million – US$171 million for the period. SDA expects Globecomm underlying EBITDA to reach around US$21 million in 2019. In relation to cost synergies from the acquisition of Globecomm, the company is in line with its earlier guidance of achieving US$11 million.

The company believes that it would be able to achieve the revised full-year guidance for 2019. This means that the company could register a larger increase in underlying EBITDA from 1H 2019 to 2H 2019, as opposed to previous years. SDA anticipates ramp-up of anticipated cost synergies from the acquisition of Globecomm, re-organisation benefits and usual seasonality to drive the underlying EBITDA increase.

Further, over the medium-term, the company expects healthy growth in maritime (commercial shipping and cruise) and government divisions. As per the company’s expectations, there would be a continuous increase in defense spending as well as revenue synergies due to the integration of Globecomm in 2020 and beyond.

The company is due to announce its 1H 2019 results on 27 August 2019.

Stock Performance:

The shares of SDA have given a YTD return of -25.09%. SDA stock closed the trading at A$1.720 on 3 July 2019, down 16.505% from its previous close. SDA holds a market capitalisation of A$493.87 million and approximately 239.74 million outstanding shares. It has an annual dividend yield of 3.5%, while its EPS stands at A$0.011.


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