Philip Carse, Analyst at Megabuyte.com, reports on the recent performance of leading companies in the comms space during the last quarter.
The Telecoms & Networks peer group continues to out-perform in share price terms, with a three month gain of 7% versus -2% for the FTSE All Share and a one year gain of 25% versus +3% for FTSE. However, the performance is broadly reflective of UK tech stocks, and in fact is slightly less than the broader Megabuyte Taylor Wessing index of tech stocks. The highlights of a relatively quiet period include Fidelity's proposed take private of COLT, Ofcom's major strategic review which will consider the structural separation of BT, and well-received results from Adept Telecom and Redcentric.
The biggest recent gainer in the last three months has been multi-utility reseller Telecom Plus, up 40%, though this is only a recovery of sorts from a share price battering caused by a profits shortfall from warmer weather, strong energy supply competition and gas billing bad debts. The shares are still down 15% over the last year. Likewise, Pinnacle Technology shares are up 37% on a positive trading outlook, but are still down 28% year on year due to the company suffering from previous poor acquisitions.
COLT makes a rare appearance near the top of the share price gainers, after its founder and majority shareholder Fidelity announced a 190p per share (2.34bn euros) enterprise value offer to take the company private. COLT subsequently announced a strategic exit of IT services (hosting, storage and cloud) to focus on networks, voice and data centre services. It will exit the 68m euros revenue IT business at a cash cost of 100m euros. Despite COLT's independent directors opining that the bid undervalues COLT, a current share price of 188p suggests it's a done deal.
Business comms provider Adept Telecom has risen 20% in the last three months and is the leading share price performer over 12 months, at +72%, off the back of a return to revenue growth assisted by the April 2014 Bluecherry acquisition, with revenues up 6% to £22.1m and improved margins in the year to March 2015. The outlook is also positive, assisted by the more recent acquisition of unified comms and managed service player Centrix.
The share price of BT (+6% over three months) has shrugged off a potential enforced structural separation of Openreach, one of the issues for debate in Ofcom's major Strategic Review of Digital Communications. While Ofcom notes BT's inherent conflicts and Openreach's Quality of Service issues, it states in the discussion document that structural separation may not necessarily improve the situation in the absence of competition. Perhaps surprisingly, the share price of competing fibre to the premise builder CityFibre (-16%) has not responded to Ofcom's potential increased focus on local access competition.
At the other end of the league table, Coms plc has the worst three and 12 month performance as new management grapple with a poorly executed buy and build strategy. The company recently sold its Telecoms division to Timico for an initial £2.5m in cash to buy some breathing space. Timico also recently acquired Wirebird for its IT skills. This follows a frustrating 2014 for Timico, when the company failed to IPO and new accounts show 2014 revenues and EBITDA both down marginally in contrast to more bullish IPO forecasts.
In contrast, the shares of Gamma, which did succeed in IPOing in 2014, are up 35% since October 2014 off the back of solid trading. Also noteworthy is Redcentric (shares up 44% over one year), with the accounts to March 2015 highlighting the success of the company's buy and build strategy, combining elements of Redstone, Maxima and InTechnology. Revenues and EBITDA rose 8% and 32% in organic terms to £94.3m and £21.4m, with cash flow to match.
The other M&A news of note was the completion of Daisy's £184m bid for Phoenix IT, boosting its EBITDA by an estimated 42% before synergies and, more importantly, creating an unparalleled £200m revenue business selling IT and telecoms services to the UK mid-market as part of the £500m revenues of the whole group. Meanwhile, Vodafone and Liberty Global are discussing asset swaps which could involve a merger of Vodafone UK and Virgin Media under one or other owner, as a response to the proposed BT/EE and 3/O2 deals. Vodafone has also come to the aid of cloud partner Outsourcery with a £4m loan, replacing £1.7m in existing facilities.
Finally, we were intrigued to read the plans of Angie, a Dutch start up which is attempting to raise 1.6bn euros at a 3bn euros valuation to finance a new UK next generation fibre and mobile network. The company believes it can build a 8.6bn euros revenue, 4.8bn euros EBITDA business by 2022 with just 1.5bn euros investment, defying all market logic. Eating hats springs to mind.