The New Conviction Buy from Experts: ST1, TLS, SPK and 5GN

Communications service provider (CSP) is a term used for companies offering telecommunication or some other kind of combination of information and media services electronically. CSP is a broad term which covers a range of service providers like telecommunication carriers, satellite broadcasting operators, content and application service providers (CASPs), cable service providers, and others.

Let’s look at some of the communication service providers in Australia that the market has been bullish about over the last few months.

Spirit Telecom Limited

Spirit Telecom Limited (ASX: ST1), based in Australia, is engaged in the provision of telecommunication services such as voice, fibre broadband, internet, and business services. The company has a market capitalisation of around AUD 72.98 million with ~ 339.42 million shares outstanding. On 5 September 2019, the ST1 stock closed the day’s trading at AUD 0.230, climbing up 6.977% by AUD 0.015 with ~ 278,804 shares traded. In addition, ST1 has delivered positive returns of 26.47% year-to-date, 115% in the last six months, and 16.22% in the last three months.

Leadership Changes – On 3 September 2019, Spirit Telecom informed that its co-founder Mr Geoff Neate had decided to resign from his duties as the Managing Director. Over the years, since the inception of Spirit Telecom, Mr Neate had navigated the business from a simple telecommunications reseller to a carrier that is considered as one of the fastest internet service providers in Australia. He also guided the company from a 2004 start up to publicly listing in June 2016 and thereafter, Spirit Telecom grew on the back of organic growth as well as various acquisitions.

Source: Financial Year Results 2019

Meanwhile, the company also appointed Mr Sol Lukavsky as the New Managing Director. He joined the company in 2018, and most recently held the role of Chief Sales & Marketing Officer as well as Executive Director (appointed to the board in June 2019).

FY19 Results – Revenue of ST1 rose 7.5% to $ 17.4 million relative to FY18, due to the second half turnaround which saw a 13% increase over the first half of FY19. In addition, its gross profit increased to $ 12.9 million and group gross margins expanded to 74%. A snapshot of the results is as follows-

Source: Financial Year Results 2019

Telstra Corporation Limited

Melbourne, Australia-based Telstra Corporation Limited (ASX: TLS) is a full-service domestic and international telecommunications provider in Australia. The company offers telephone exchange lines to homes and businesses, supplying local, long distance and international telephone calls and supplying mobile telecommunications services. Telstra also provides data, internet, on-line services and directory services. With a market capitalisation of around AUD 42.46 billion and ~ 11.89 billion outstanding shares, the TLS stock closed the day’s trading at a price of AUD 3.590 on 5 September 2019, edging up 0.56% by AUD 0.020 with ~ 33.23 million shares traded. In addition, the TLS stock has delivered positive returns of 31.16% year-to-date and 14.98% in the last six months.

Updated FY20 Guidance – On 2 September 2019, Telstra Corporation announced an updated FY20 guidance, following the release of NBN Co’s Corporate Plan 2020 on Friday, 30 August 2019. Telstra’s FY20 guidance released on 15 August 2019 assumed that the nbn rollout and migration in FY20 would be broadly in accordance with the NBN Co’s previous Corporate Plan 2019. However, NBN Co’s Corporate Plan 2020 provided updated information giving their outlook for FY20, including a reduction in the total number of premises forecast to be connected during FY20 from 2 million to 1.5 million.

Telstra now anticipates FY21 to be the year of peak nbn headwind and not FY20. The revised FY20 guidance is as follows:

Source: Company announcement dated 2 Sep 2019

FY19 Results – On 15 August 2019, Telstra Corporation disclosed its financial results for the year ended 30 June 2019 (FY19), reporting a strong progress in the T22 strategy in the first year including reducing the number of consumer & small business plans in market from 1,800 to 20, introducing no lock-in plans across fixed and mobile and removed excess data charges in Australia, rolling out commercial 5G service and dropping around 7.7 million (22%) in calls to call centres.

On a reported basis, total Income decreased 3.6% to $ 27.8 billion, while EBITDA was down 21.7 % to $ 8.0 billion and NPAT decreased 39.6% to $ 2.1 billion.

Spark New Zealand Limited

Spark New Zealand Limited (ASX:SPK) is a digital services provider for communications, entertainment and IT services over its networks and the cloud to New Zealanders and businesses. Spark has a market capitalisation of around AUD 7.8 billion with ~ 1.84 billion outstanding shares. On 5 September 2019, the SPK stock closed the day’s trading at a price of AUD 4.280, up 0.706% by AUD 0.030 with ~ 1.85 million shares traded. In addition, SPK has delivered positive returns of 17.51% in the last three months, 15.40% in the last six months and 5.76% year-to-date.

Acquisition of NOW Consulting- On 5 September 2019, the company announced that its data, analytics and artificial intelligence (AI) business, Qrious, had completed the acquisition of NOW Consulting - the New Zealand-based data consulting division of WhereScape Software, in a strategic move that will give Qrious a unique data and analytics offering in the New Zealand market.

The merged business would operate under the brand name, Qrious, combining the rich data, analytics, AI and data-powered customer engagement capabilities of Qrious with NOW Consulting’s wealth of expertise and capability in data integration, engineering and visualisation.

Annual Results FY19 – For the financial year ended 30 June 2019, Spark New Zealand posted operating revenues and other gains of $ 3,533 million with an EBITDA of $ 1,090 million, up 11.1% yoy on a reported basis and up 5.8% yoy on an adjusted basis. Spark also significantly outperformed its mobile market competitors, securing over 60% of the total FY19 market growth in service and revenue connections.

A snapshot of the results is given below.

Source: Annual Report 2019

On 21 August 2019, the company also announced a dividend of NZD 0.14154412 on the ordinary fully paid Foreign Exempt NZX (Record Date: 20 September 2019; Payment Date: 4 October 2019).

5G Networks Limited

Melborune, Victoria-based 5G Networks Limited (ASX:5GN), established in November 2017, offers broadband services like data networking, cloud, data centre and managed services to Australian mid-market business and government organisations. With a market capitalisation of around AUD 57.47 million with ~ 63.5 million shares outstanding, the 5GN stock closed the day’s trading on 5 September 2019 at AUD 0.895, down 1.105% by AUD 0.010, with ~ 460,362 shares traded. In addition, the stock has delivered positive returns of 115.48% year-to-date and 31.16% in the last six months.

On 26 August 2019, 5G Networks Limited declared an ordinary fully paid dividend of AUD 0.01 (Record Date: 20 September 2019; Payment Date: 18 October 2019) related to the period of six months ended 30 June 2019.

On the same day, the company announced its annual results for FY19.

FY19 Results – For the year ended 30 June 2019, 5G Networks reported record growth with revenue for the full year at $ 51 million and EBITDA before acquisition and option costs of $ 3.2 million.

Source: Full-Year 2019 Results Presentation

The key activities undertaken during the year included three acquisitions completed and integrated, 2,500 customers with strong growth in the B2B mid-market, national expansion to 12 offices and 200 experienced employees, 71% of the total FY19 revenue being contracted and recurring, plus $ 27 million in (TCV) revenue was recorded from re-signs and introducing new customers.

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