Philip Carse, Analyst at Megabuyte.com, reports on the recent performance of leading companies in the comms space during the last quarter.
Currently or once-distressed telecoms assets continue to be theme of corporate activity, following the previous quarter's Maintel/Azzurri deal, with GCI taking over Outsourcery's assets and Pinnacle reinventing itself with the sale of existing activities and the acquisition of three managed services companies, including adept4 whose name Pinnacle has now adopted.
Meanwhile, private equity interest in UK telecoms and networks continues, with Lyceum backing an MBO of contact centre specialist Sabio and Livingbridge buying a minority stake in Southern Communications. Superfast broadband remains in vogue, with Hyperoptic receiving 25m euros funding from the EIB, following Gigaclear's 24m euros equity raise and similar 25m euros EIB loan earlier in the year.
Outsourcery's sorry AIM experience finally came to an end with BGF-backed GCI picking up the assets for an undisclosed sum after major channel partner and creditor Vodafone triggered a sale to protect its customers. GCI will pick up about £8m revenues at about EBITDA break-even, versus the £4m loss Outsourcery suffered in 2015, boosting its revenues by about 15%. Assuming that GCI picked up the assets for no or low cost, this looks to be a strategically sensible deal, with GCI having the routes to market to leverage Outsourcery's Cloud platform.
Another buy and build failure, Pinnacle, completely reinvented itself in the quarter, selling its softswitch-based £6.7m revenue subsidiary Pinnacle CDT to Chess for £2.8m, giving away its problem child security business RMS Managed IT Security Limited for £1, and buying two Leeds-based IT services companies (Ancar-B and Weston) for £5m and managed services provider adept4 for £5m. The rejig was part-financed by a £4.5m equity fund raise and an investment from the BGF, and Pinnacle has now adopted the adept4 name.
Private equity investor Lyceum Capital acquired a majority stake in contact centre specialist Sabio in a deal valued at £50m, or about 10x current year underlying EBITDA. New CEO Andy Roberts updated us on continued solid organic trading and how the MBO is expected to accelerate Sabio's development through the use of M&A for the first time, but still with its contact centre focus.
Business comms provider Southern Communications secured a minority investment by Livingbridge and new bank facilities to fund M&A. The firm told us that revenues were up about 30% to £30m to March 2016, mostly M&A-led, with rising margins.
Front runners
The standout results/updates this quarter came from companies focused on connectivity, including Exponential-e, euNetworks and Virtual1. For example, network and cloud specialist Exponential-e maintained its exceptional growth record in the year to January 2016, with revenues up 28% organically to £77.3m and rising EBITDA margins, albeit with the usual recycling of EBITDA into capex. More of the same is expected this year.
Redcentric reported revenues to March 2016 up 16% (8% organic) to £109.5m, driven by recurring revenue growth, and EBITDA up 21% to £25.8m as the company benefits from M&A synergies, including last year's Calyx and City Lifeline deals. However, net debt rose £18.1m to a higher than expected £25.3m due to cash collection issues, higher capex, exceptional costs and M&A. The outlook is for continued strong organic growth.
Alternative Networks' first half results to March 2016 reflected February's mobile-driven profit warning, with EBITDA down 27% to £7.5m on revenue down 4% at £69.3m. The good news is that the company seems to have stabilised the ship, with new Mobile commercial arrangements, while growth in Advanced Solutions and an overall healthy backlog point to a stronger second half. The company has also significantly enhanced its bank facilities for M&A. Alternative Networks is the main share price faller over the last year, down 51%.
TalkTalk issued an in-line first quarter 2017 update (to June), with overall revenues down 0.4% (to an estimated £447m) but good Corporate and TalkTalk Business performances, while reiterating second-half weighted full year guidance of modest revenue growth and £320-360m EBITDA. The company has also given some details of the York FTTP trial including (jointly with Sky) 12% penetration three and a half months after launch and a cost per premise below £500, which it believes proves the concept.
Adept Telecom reported a strong cash-generative, M&A-driven year to March 2016, with revenue, EBITDA and the dividend all up 30-37% to £28.9m, £6.2m and 6.5p respectively off the back of the acquired Centrix's managed services contribution. Its shares are up 22% over the last year.