5G Networks Limited (ASX: 5GN) is a licenced telecommunications carrier operating across Australia with a vision to be the provider of choice for unifying a seamless digital experience for the customers across data connectivity, cloud and managed services in the business to business market. The company has a customer base of over 2000, including government organisations and several top 50 ASX-listed companies.
June 2019 Quarter Results
On 26 July 2019, 5G Networks disclosed its Quarterly Activities Report for the three months to 30 June 2019 (Q4 FY2019), demonstrating sustained performance. The cash receipts for the period amounted to $ 15.4 million, while the full-year cash receipts totalled $ 53.6 million (greater than expected), a total of $ 30.8 million in receipts for the second half compared to the first half of $ 22.65 million.
The company achieved sustained growth across cash balance, cash receipts, and operating cash flow with annual cash receipts for FY2019 totalling $ 53.6 million as compared to $ 5.6 million recorded in the previous year FY2018.
Source: Quarterly Report June 2019
In addition, to achieve supplier incentives and rebates, an additional advance payment of $ 1.6 million was made at the end of Q4 FY2019. Excluding this payment and $ 201k in acquisition costs, 5GN’s positive net operating cash flow came in at $ 730k for the quarter; other abnormal payments included $ 120k of leave entitlements to employees exiting the Company during this quarter. Given that, the supplier liabilities reduced by $ 3 million in the quarter from $ 6.6 million in Q3.
5G Networks also secured new and re-signed revenue worth of $ 7 million in Q4 FY2019, demonstrating continued customer commitment and expansion of services. A number of large clients signed up, and the retention of these customers exhibits organic growth as the company continues to execute the cross and upsell of its core product suite; a major contribution to the success and maturity of the 5GN sales strategy.
5G Networks is well positioned with a strong cash balance of $ 6.7 million and $ 2 million of available debt to target selected acquisitions. The evaluation of many targets is underway with data centres in Sydney being the primary key focus to continue infrastructure expansion as well as a number of managed cloud providers in Sydney and Brisbane are also being analysed.
The company’s Fibre network throughout Melbourne continued to expand with 11 km of fibre installed and under construction, now passing over 500 buildings in the Melbourne CBD and inner Metropolitan areas. The Capital expenditure of $ 487 k for Q4 was driven by customer-led fibre network expansion. The Company launched the National MPLS Network in March 2019.
With a strong core network in place, the Company has started to migrate customers from third-party data links onto the 5GN managed network services to drive cost reductions and improved profitability across its core offerings.
During the concerned period, the company accomplished the implementation of Salesforce, the launch of a new single 5GN website and completed several internal projects concerning system integration. In addition to that, the integration of the Melbourne Data Centre (MDC) acquisition was also executed.
MDC Acquisition Summary – On 2 April 2019, 5G Networks announced the acquisition of Melbourne Data Centre (MDC), located in the heart of Melbourne CBD at a consideration of $ 5.7 million (purchase price), representing a 7x EBITDA multiple. The purchase price constituted ~$ 1 million in cash and $ 1.75 million in issued shares (five-day VWAP); plus $ 2.95 million in cash to be paid over the next 3 years.
The integration was expected to add $ 3 million of annualised Revenue while annualised synergies of $ 600k per annum are expected to be realised within the first three months. Currently, MDC is operating at 40% capacity, which leaves room for unlocking rapid growth.
Going forth, 5G Networks is concentrating on the launch of its ‘Cloud Port’ product which is a software-defined solution with intra and interstate data centre connectivity which presently connects more than 11 data centres country-wide with rapid expansion to continue in the upcoming months.
Source: Investor Presentation
Leadership Changes – Recently on 5 July 2019, 5G Networks announced the appointment of Mr. Glen Dymond to the position of Chief Financial Officer (CFO) and Company Secretary. With over 25 years’ experience, Mr. Dymond has managed over $ 2.5 billion throughout his career across capital raising, bank debt facilities, refinancing and management of financier syndicate activities for several ASX-listed entities, including Zenitas Healthcare Limited (ASX:ZNT), Spotless Group Limited (ASX: SPO), Broadspectrum Limited and ConnectEast Group.
Completion of $ 8 million Placement – 5G Network completed a Placement in early April 2019 via an issue of 10,000,000 new fully paid ordinary shares to sophisticated and professional investors at $ 0.80 each, raising around AUD 8.0 million before costs.
The funds from the placement were indicated to be directed towards bolstering the capital base, allowing further selected acquisitions as well as provide capital expenditure to advance the east coast rollout of 5GN’s fibre network.
National Data Network Launch– On 22 March 2019, 5GN officially launched its nationwide high-speed Managed Data Network (MPLS) to the Australian market marking a key milestone in the execution of the company’s strategy.
The company is particularly focussing on growing the data network services by enhancing and integrating the current 5GN fibre and fixed wireless networks.
Stock Performance – 5G Networks’ market capitalisation stands at around AUD 74.93 million with approximately 63.5 million shares outstanding. On 29 July 2019, the 5GN stock was trading at AUD 1.070, down 9.322% by AUD 0.110 with ~ 1.86 million shares traded (as at AEST: 01:27 PM).
Besides, the 5GN stock has delivered positive and high return yields of 107.02% in the last six months and 180.95% YTD.
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