Sat Sol Share Discussion Threads

[tightfist] 05/4/2016 10:11

Hi Matis,

Thanks for the info. All good stuff; I am surprised TPSL have majored on acquisition-led growth, rather than organic or Governments-funded growth which are far more attractive and will not stretch the balance sheet.

The vulnerability point about Brexit is well made. Cheers, tightfist

[dirty75] 04/4/2016 17:29

Amazing ! Highlights how basic this model is which is fantastic and how profitable it will be. Foundations all laid now Upside all the way.

[qs99] 04/4/2016 15:35

nice continued moves upwards, enjoying the ride!

[dirty75] 31/3/2016 12:02

getting there !

[[e-mail]] 29/3/2016 13:11

you may laugh matis but you may be right!!!!!!!!!!!!!!!!!

[matis0906] 29/3/2016 11:42

£12.75 by Christmas 🎄 lol....

[[e-mail]] 29/3/2016 11:35

25p by summer.

[falia] 29/3/2016 09:18

10P COMING UP THIS WEEK

[[e-mail]] 29/3/2016 09:16

looking good, new it would.

[tightfist] 22/3/2016 19:22

Hi Matis,

Many thanks for posting the above article; it pulls it all the figures together in much the same way as I have attempted. The subscriber acquisition costs are much as I expected, I like the alternative ideas about funding that cash outlay - that is the key to success and we had better stand prepared to take on considerable gearing! Customer acquisition through Government-funded schemes and organic growth is far more attractive.

It makes a very attractive prospective ROE story, with great cash flow characteristics. I would like to hear more about competitive activity/pricing and sustainable differentiation of the Europasat offering.


Cheers, tightfist

[matis0906] 22/3/2016 08:12

INVESTOR CHRONICLE ARTICLE FOR THOSE WHO HAVE NOT SEEN IT:



Blue sky tech play
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As anyone who lives in a rural area of the country will be all too aware, internet connection speeds can be painfully slow. In fact, there are no fewer than 2.2m households in the UK which suffer from inadequate broadband speeds - defined by the government’s as below its indicated minimum acceptable speeds of 10Mbps - according to the most recent British Infrastructure Group’s report. Small and medium sized businesses operating in these areas are impacted too. Moreover, this is not just a UK-centric problem, as industry estimates suggest 22m of the 216m households across Europe suffer from dire broadband speeds.

The UK government is trying to address this issue. As part of its Broadband Delivery UK intervention (BDUK) programme the plan is to deliver superfast broadband to 90 per cent of the population by the end of this year, rising to 95 per cent by the end of 2017. Currently, 78 per cent of households have a broadband connection, up from 65 per cent five years ago. The problem being that even if this target is reached it doesn’t mean all households will be able to access superfast coverage (deemed to be 24Mbps capability). That’s because some premises are simply located too far from the cabinet that provides access to high download speeds, so are still reliant on far slower coverage.

Technology analyst Michael Armitage at a broking house Arden Partners believes that even if 80 per cent of premises get superfast speeds by the year-end, in rural areas where line lengths are inevitably longer than the national average, the figure “will often be as low as 50 per cent”. He has a point as there are swathes of the country labouring under sub-1Mbps download speeds, a situation that has largely remained unchanged in the past five years even though average broadband speeds have soared fivefold to in excess of 30Mbps in the same period.

Blue sky thinking

The obvious solution to this problem is to look to do some blue sky thinking, quite literally, and look to a satellite internet service provider to provide an alternative high speed broadband service. However, the typical £300 to £400 upfront cost of the equipment required to access satellite broadband can be a deterrent. That’s one reason why the government announced at the tail end of last year a scheme to defray the entire cost of equipment purchase. It’s very good news for satellite providers, and for Satellite Solutions Worldwide<<a href='http://markets.investorschronicle.co.uk/research/Markets/Companies/Summary?s=SAT:LSE' target='window'>http://markets.investorschronicle.co.uk/research/Markets/Companies/Summary?s=SAT:LSE> (SAT: 5.5p), a small cap company that listed on Aim last May, in particular. SSW’s Europasat satellite business currently has 12,000 customers, representing 35 per cent of the total in the UK, and following a number of acquisitions made last year now has 13,000 customers in Europe, representing an 8 per cent share of the market there.

My attention was sparked when SSW announced in mid-January a contract award with BT<<a href='http://markets.investorschronicle.co.uk/research/Markets/Companies/Summary?s=BT.A:LSE' target='window'>http://markets.investorschronicle.co.uk/research/Markets/Companies/Summary?s=BT.A:LSE> (BT.A) to become one of the satellite broadband retail service providers under the UK Government scheme to offer subsidised satellite broadband to up to 300,000 homes and businesses with internet connections of less than 2 Mbps. Under the satellite scheme, the UK Government will provide funding for the capital cost of the dish and modem equipment, connection fees and professional installation for qualified participants, which could be worth up to £350 per end user. The scheme opened in December, and SSW is offering a number of packages ranging from a basic service of up to 10 Mbps download and 2 Mbps upload with a usage allowance of 10 GB, to 'super-fast' satellite broadband services of up to 30 Mbps download and 2 Mbps upload connections.

The company is also involved in a similar scheme in Wales organised by the Welsh Government, where a variety of satellite tariffs are available and where any user that opts for its 30 Mbps service can claim subsidies of up to £800 to cover the cost of the equipment, installation and connection. The Welsh Government estimates that up to 42,000 homes and businesses may qualify for the subsidy across Wales.

These initiatives could prove a game changer for the company as they remove the hefty barrier-to-entry cost for customers on the acquisition of the kit, while also increasing the addressable market in the UK. And Europasat’s ‘entry level’ tariff, S3 Promo, is pretty competitive for potential customers in remote rural premises: offering 20Mbps download, 2Mbps upload, with a 3GB data cap, but with unlimited off-peak downloads, the service costs a modest £28.98 per month with VoIP included. This compares with the BT standard monthly tariff of £30.49 for a package offering up to 17Mbps, including line rental and anytime calls.

So for people struggling with sub-2Mbps speeds from BT, the satellite alternative is attractive both on cost grounds and availability. It can also be used as a backup to natural disaster or for corporate continuity planning, and has advantages for expats and second home owners who need to ‘port’ their broadband. SSW buys capacity from the three commercial communications satellite owners with a European footprint – Eutelsat, SES Astra, and Avanti Communications<&lt;a href='http://markets.investorschronicle.co.uk/research/Markets/Companies/Summary?s=uk:AVN' target='window'>http://markets.investorschronicle.co.uk/research/Markets/Companies/Summary?s=uk:AVN> (AVN) – and then resells that capacity to end-users, plus a margin, so is able to offer a two week connection on orders.

Addressable market

New customers are generally acquired by SSW through direct channels – telesales and via the website – and also through the 300 satellite service resellers who operate in Europe which share the margin. The company has also been acquiring distributors whose customers are then migrated onto its Europasat platform.

SSW has been pretty active on the acquisition front, having made seven acquisitions of resellers since the shares listed including the purchase of two companies in France last year: Sat2Way SARL, one of the largest and most respected providers of satellite broadband, and Vertical Connect. These deals brought in over 9,000 customers at an average cost of £165 each.

This means that SSW now has over 10,000 customers in France, making it the second largest satellite broadband provider, so is well positioned to target an addressable market of one million homes with broadband speeds of less than 2Mbps, or 3 per cent of the total market. It’s worth noting that the French government is also incentivising the roll-out of satellite broadband by offering subsidies across many areas via its "subvention" scheme with a stated commitment to enable 150,000 broadband subscribers on satellite by the end of 2018. SSW has signed agreements with 44 out of the 54 regional departments in France to sell its satellite broadband under the French government’s incentive scheme.

Co-founder and chief executive Andrew Walwyn also sees opportunities in Poland. About 35 per cent of the 5m homes in Poland have broadband speeds below 2Mbps, so having acquired the customers of two providers of satellite broadband services at the end of last year SSW is well placed in this market. It’s also well positioned to exploit opportunities in Scandinavia as the largest operator in Denmark.

SSW at an inflexion point

Having built up scale, the business should turn profitable this year. Without factoring in any more acquisitions, but reflecting the full benefit of the seven made since May 2015, Arden Partners expects SSW to grow revenues from £7.4m to £13.5m in the 12 months to end November 2016 to produce operating profits of £300,000. This factors organic growth of 20 per cent in the current customer base of 25,600, a sensible prediction considering SSW generated underlying growth of 25 per cent last financial year.

It’s the potential to scale the business by acquisition, combined with ongoing growth in the existing client base that really excites me. In fact, the target is to grow the customer base to 100,000 by the end of 2017, implying the acquisition of around 64,000 customers over the next 21 months at a cost of £20m based on a subscriber acquisition cost of £300. The profit implications of this growth could be huge.

Factoring in average revenue per user (ARPU) of £30 per month, a conservative assumption given that SSW currently earns £41 per month albeit it does acknowledge lower ARPU earned in Europe, and a reseller margin of 30 per cent when these clients are ported onto Europasat’s platform, then each 10,000 of new client acquisitions adds around £1m to SSW’s cash profits.

Of course there is a £300 to £400 client acquisition cost – assuming new customers don’t benefit from the aforementioned government subsidies – to take into consideration too. This implies an annual interest charge of around £350,000 needs to be deducted from the £1m cash profits if all these acquisition costs are debt funded. Still, the implication is that if SSW can achieve its 100,000 customer base by the end of 2017 then it could be generating cash profits of £7m over and above Arden’s current forecast.

Mr Armitage at the broker currently predicts that excluding further customer acquisitions, the current client base should be able to produce revenues of £15.6m in the 12 months to end November 2017 to generate pre-tax profits of £1.4m and EPS of 0.47p. In other words, the shares are only trading on 11 times next year’s likely earnings, but forecasts look heavily skewed to the upside given the ambition of the board to grow the business both organically and by acquiring more European satellite service resellers. And SSW has the infrastructure to act as a consolidator in a fragmented market, having invested about £1m in a scalable customer servicing platform, Aurora, with the capacity to handle 100,000 customers, four times the current size.

Importantly, the returns from this acquisition strategy exceed SSW’s cost of capital by quite some margin. Assuming a 20 per cent churn rate, implying a five-year customer life, then Arden calculate this will generate a 23 per cent gross internal rate of return on each £300 acquisition cost (assuming a 30 per cent reseller gross margin and ARPU of £30). This means that by using financing to fund the next stage of acquisitions, rather than SSW’s modestly-rated paper, it will be significantly earnings enhancing.

Net cash was £1.7m at the end of November which will easily cover SSW’s working capital requirements this year without recourse to additional funding. But to finance further acquisitions, I understand that SSW is looking to tap alternative sources of funding including invoice discounting, trade finance, and even funding from the European Investment Bank and other national lending institutions.

So this is a company offering the compelling mix of a rapidly expanding customer base, rising margins, a move to profitability, and a likely stream of positive news flow on earnings accretive acquisitions. There is a lot to like.

Target price

Of course, investors are cottoning on to the opportunity which is why SSW shares rose 50 per cent to 6.67p in the weeks after the BT contract win. They have also had the opportunity to assess prospects following last week’s upbeat trading update which highlighted a growing recurring revenue base, and a strong pipeline of acquisition targets, subject to funding.

Bearing this in mind, SSW’s management team is experienced. Non-executive chairman Michael Tobin was formerly chief executive of FTSE 250 data storage group Telecity prior to its takeover; Mr Walwyn previously handled the disposal of Tiny Computer’s internet service provider business to Tiscali and the sale of the company to Time Computers; and finance director Frank Waters played a major role (alongside Mr Walwyn) in the £42m sale of a mobile phone retailer to what is now Telefonica. The board have skin in the game too: Mr Walwyn owns 15.8 per cent of the share capital, and chief technical officer Simon Clifton has a 10.2 per cent stake. The free float is around 47 per cent.

Needless to say, I am positive on the investment case and feel SSW’s shares are now worth buying on a bid-offer spread of 5.25p to 5.5p, valuing the equity at £16.9m, and offering significant upside to my 12-month target price range of 9p to 10p. Please note that if the spread widens ask your broker to deal directly with market makers for a better quote as past trades indicate a 0.25p spread or less is the norm.

[dirty75] 21/3/2016 15:20

Satellite Solutions Worldwide (SAT.L, MktCap £16.2m, 5.25p) – Beam me up Scotty
Maiden numbers as a listed company this week. Very much in line with market expectations with revenue reaching £7.4m (up 36%). As you will remember from a previous SoTB entry SAT is a consolidator of the fragmented satellite broadband market. 18% LFL revenue growth highlights the growth in not only the proposition but customer acceptance. SAT is quickly developing a strong footprint across Europe as the provider of decent quality broadband. A dish pointed in the right direction and a subscription is all you need – no digging up of roads, no waiting for BT etc etc.



The house broker sees an acceleration in customer growth, expanding gross margins, and a positive EBITDA – yet this is a roll-up story – there are many small providers with a number of subscribers…&#8230;.SAT has built the infrastructure and now it’s a matter of dropping the subscribers in the top of the funnel…….the subscribers become more profitable as the business grows. Currently there are 25k subscribers and management aim to quadruple this by the end of 2017. This is also a massive political issue as the right to broadband is seen as a basic utility – the recent BDUK Satellite Voucher Scheme should also be ripe pickings for SAT.

[[e-mail]] 21/3/2016 13:56

15p / 20p by august.

[dirty75] 21/3/2016 13:47

House broker, Arden, are very sweet on it.

[iainbarclay] 21/3/2016 13:37

And Simon Thompson in IC :)

[dirty75] 21/3/2016 13:35

Cenkos tip it.

[iainbarclay] 21/3/2016 12:59

Buyers arrived at noon, so I suspect a tip somewhere - though I agree, news will come soon, must be time for another acquisition...

[[e-mail]] 21/3/2016 12:46

must be news on way.

[hydrus] 15/3/2016 08:06

'The absolute focus of the team is in delivering positive EBITDA and cash generation in H1 2016 in line with our plans.'As we are a number of months into H1 I suspect they have very good visibility that this is on track.

[hydrus] 15/3/2016 07:55

Very impressive organic growth and revenue/profit in line with expectations.They don't have a lot of cash now for acquisitions so I would anticipate them getting some debt or equity raising but maybe more likely debt.