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At the backdrop of growing uncertainties due to coronavirus pandemic, investors are increasingly turning towards safe haven assets. During the heavy sell-off across the global markets, major stocks markets are now trading below their respective all time-highs.
In this article, we discuss three companies from the Communication Services sector. These companies are in pure play telecommunication services, which could be immune to the headwinds of coronavirus outbreak, especially on the demand side.
Chorus Limited (ASX:CNU)
Chorus is the NZ’s largest telecommunication service infrastructure company, and its network includes local telephone exchanges, copper, fibre cables, cabinets. According to its website, the company has over 1.5 million broadband connections, 280k poles and 11k cabinets.
On 24 February 2020, Chorus reported results for the half-year ended 31 December 2019. It posted a net profit after tax of NZD 31 million, earnings before interest, tax and depreciation (EBITDA) of NZD 332 million.
It was noted that operating cost reduction and resilient broadband connections growth, translated into resilient growth in EBITDA. The company recorded operating revenue of NZD 483 million as compared to NZD 489 million in the previous corresponding period.
CNU incurred depreciation and amortisation of NZD 198 million for the period compared to NZD 196 million in the previous corresponding period. The company delivered earnings before interest and tax (EBIT) of NZD 134 million for the period compared to NZD 122 million in the previous corresponding period.
Chorus CEO, JB Rousselot stated that Chorus had completed the nine-year contract with the government, thereby delivering fibre to 28 cities and towns. Also, the second-phase of fibre build was 40% complete with 150k premises remaining.
In its release, the company mentioned that the average data used by household was 372 gigabytes in January, up from 342 gigabytes in June. Its gigabytes plans are increasingly becoming popular among the clients.
In November, the telecommunications company debuted its new service ‘Hyperfibre’, which is believed to meet the anticipated future demand. It offers client symmetric speeds of 2Gbps or 4Gbps.
On the outlook front, the company noted that as UFB rollouts completes, it would be inclined to encourage additional fibre uptake. It was said that cost optimisation, business optimisation and broadband connection performance had enabled the company to raise FY20 EBITDA guidance to NZD 640 million to NZD 655 million, which was NZD 625 million to NZD 645 million earlier.
Starting from FY22, CNU anticipates a transition into the dividend policy based on a pay-out range of free cash flows.
On 3 March 2020, CNU last traded at $6.770, up by 4.961% from the previous close.
MNF Group Limited (ASX:MNF)
MNF Group is a provider of telecom services, communication software, VoIP services, as well as a range of software-as-a-service products for routing services to government agencies and utility services.
Last week, the company released results for the half-year ended 31 December 2019. Its EBITDA was increased by 52% to $16.9 million (FY19 restated to reflect AASB16), net profit after tax (NPAT) increased by 20% to $3.7 million.
By the end of the period, MNF had cash of $38.6 million and undrawn debt facilities of $30 million to fund the growth ambitions in the near-term. During the release of the results, the company reaffirmed the EBITDA guidance of $36 million to $39 million, on an after-AASB 16 basis.
Source: MNF Presentation
Also, the company updated the NPAT guidance to $10-12 million, reflecting the changes in R&D concessions, higher amortisation, non-cash employees plans, non-cash employee share plans and AASB16.
In Singapore, the company is building a next-gen voice network, on which physical construction of the network is complete and interoperability testing with the incumbent carriers underway.
It was noted that the company continues to receive strong interest from the global customer base for fixed line phone numbers with number portability in Singapore.
On the business outlook, it was noted that the company continues to witness strong demand from its core products. MNF mentioned that it has seen organic growth from the domestic as well as international customers at the backdrop of impending completed NBN roll-out and ISDN shut down.
On 3 March 2020, MNF last traded at $4.000, up by 2.828% from the previous close.
Uniti Group Limited (ASX:UWL)
UWL operates in three segments – fixed fibre services, wireless internet and special telecommunication products. It is building its own network offering high-speed internet as an alternative to NBN.
Recently, the company has released results for the half-year ended 31 December 2019. During the period, the company acquired three business – LBNCo, OPENetworks and 1300 Australia.
Prior to releasing results, the company had upgraded guidance for underlying EBITDA to reflect the integration program as well as organic growth.
For the reported half-year period, the company delivered an underlying EBITDA of $7.2 million compared to an EBITDA loss of $1.6 million in the previous corresponding period. The underlying adjustments included one-off costs on business acquisitions, amortisation of customer contracts and non-cash share-based payments.
UWL generated an underlying net profit before tax of $4.2 million as against a loss before tax of $3.1 million in the previous corresponding period, showing an improvement of $7.3 million.
Source: UWL HY Presentation
For the reported half-year period, the company recorded an income tax benefit of $5.4 million in recognition of income tax losses incurred by the company over the previous years. During the period, the company wholly-acquired LBNCo for a total consideration of $100 million, excluding cash and debt.
Also, the company acquired 100% control of OPENetworks for the total consideration of $27.7 million, excluding cash and debt. Further, the acquisition of 1300 Australia was completed for a total consideration of $78 million.
On the outlook, it was noted that for the second half of FY20 – the company expects to deliver H2 underlying EBITDA in the range of $17.5 million to $18.5 million, which excludes the share-based payments. The company expects H2 exit run-rate to be in between $38 million to $40 million, after annualising the June 2020 forecast underlying EBITDA.
On 3 March 2020, UWL last traded at $1.28, up by 1.587% from the previous close.
