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Real-Time news about Spiritel (London Stock Exchange): 0 recent articles
pinnacle telecoms, in the same sector and may well be brought out by daisy in the future
11th November 2010 Analyst: Philip Morrish
Email: [email protected]co.uk
Tel: 0207 562 3362
Pinnacle Telecom Group - Closed Year Strongly, Forecasts Upped and Target Price Increased to 0.79p (0.53p)
Total no of Shares
GBP 7.28 million
12 Month Range
Alan Bonner, Chief Executive 0845 119 2100
Pinnacle Telecom Group plc is an acquisitive AIM listed provider of hosted integrated telecommunications solutions, specifically focused upon the huge UK SME market. The company, currently over half way through its strategic repositioning, is starting to strongly deliver as demonstrated by the graph: Half Yearly Trend in Turnover & Operating Profit, below. Indeed, Pinnacle reported a maiden operating profit (clean of amortisation and exceptional charges) of GBP40,841 for the six months ended 31st March 2010 compared with a loss of GBP413,695 for the comparable period a year earlier.
The strong first half performance has continued into the second half with the company providing the connectivity circuits for the television and radio broadcasting of over 42 major events, including the Pope's visit, all the political parties conferences, and the Glastonbury and Reading Festivals. Moreover, Pinnacle's hosted communications solution is fully endorsed and extensively used by the BBC. Indeed, on 14th October, the company was awarded the best Enterprise Solution award at the prestigious 2010 Comms National Awards for its BBC solution.
Pinnacle has rapidly become the market leader in this market segment and on 7th October 2010, the company confirmed that '... The events business has helped ensure that the Company will deliver turnover for the year ended 30th September 2010, ahead of market expectations.' In light of this comment, we have edged up our sales expectations for the financial years ending 30th September 2010 and 2011 by 1.5% to GBP6.5 million and GBP8.6 million respectively although not as yet fully reflected in EBITDA margins due to further technical infrastructure investment.
Additionally, the company successfully raised GBP0.45 million before expenses through a placing of 128,571,429 new Ordinary shares at 0.35p each, a then premium of 18.64% to the 21st September mid-market price, for general working capital requirements so that the company can continue to capitalise upon the growing number of opportunities; we estimate that the group closed the 2010 financial year with net cash of GBP0.5 million.
Pinnacle remains comfortably on track with its strategic repositioning into a hosted integrated communications solutions provider; the business has been stabilised, management team strengthened and its market opportunities and service offerings have been clearly defined - exemplified by the company's market leadership position in the 'events' market segment. The company is now beginning to release its growth potential as demonstrated by its return to an operating profit before exceptional items while the recent strengthening of the balance sheet will ensure that further opportunities to accelerate growth that is consolidating will not be missed.
This week Daisy Group agreed to acquire SpriTel, a broadly similar business to Pinnacle, on EV/Sales multiple of 1.57 times sales for the financial year ended 30th April 2010 and is consistent with our approach to valuing Pinnacle.
Therefore, with the shares trading at 0.39p, the 2009 financial year Enterprise Value was GBP4.899 million, which is 1.53 times reported 2009 sales of GBP3.192 million. We estimate that by the end of the 2011 financial year, the group will be EBITDA profitable and increasingly cash generative, such that (in the highly unlikely event of no further acquisitions) Pinnacle will close the year with net cash of GBP1.62 million. Therefore, if the shares were to trade on a similar EV/sales multiple, then, based on our revised but still conservative 2011 forecasts, they would be 0.79p. With the shares currently trading at 0.39p we re-iterate our recommendation of buy.
Year to 30th
Pre-tax Profit (GBP000)
Earnings Per Share (p)
Price Earnings Ratio (x)
Source: Company and Growth Equities & Company Research|
|longshanks: I have been digging into the figures for STP a bit more to see what level of overall investment has been made by Penta over the years.
Bearing in mind that they have been heavily involved since the reverse takeover of Expo in 2004 in which they controlled 20%, the money they have put into this investment is quite considerable.
Original investment (Expo): £5.2m
Loan converted @110p: £2.6m
Loan converted @150p: £0.5m
Loan converted @60p: £6.9m
Current convertible loan: £7.6m
In total they have invested £22.7m in STP. They currently have 14.5m shares which will increase to 33.5m shares should they convert the outstanding loan notes before November 2014.
On that basis they have invested all that money at the equivalent of 68p/share.
The current quoted market cap for STP is a little misleading as it doesn't account for the convertible loan notes and LTIP shares that could dilute the share base quite considerably. I have calculated that full dilution would result in 49.5m shares being in issue; implied market cap of £23m as opposed to quoted one of £8.5m
In fact, for Penta to just get their money back the business would have to be sold for £34m.
My guess is that they want a much better return than breakeven and will be looking to make a trade sale for the business that values it some 5 to 10 times their investment - say £250m as a nice round number. That would imply a share price of approx £5.
All told these figures go some way to explaining why the share price is still as low as it is. The potential dilution and controlling stake of Penta is a considerable deterrent and the target price of £5 looks a tall ask on historical performance and a takeover at that price any time soon looks very unlikely.
However the business is now soundly financed, operationally profitable and growing at an impressive rate. With recent acquisitions, I estimate the current annualised EBITDA run-rate to be ~£5m - 230% ahead of EBITDA in April 2009.
Further acquisitions will follow - in part now funded by internal resources, but mostly through bank debt that will become increasingly available now that they have a stronger balance sheet. I conservatively believe we could see 100% improvement on EBITDA for each of the next three years. This would give us 2014 EBITDA of approx £40m.
A trade sale of the business for £250m at that point should therefore be pretty straightfoward and give Penta the exit they are looking for.|
|longshanks: Anyone take note of my O/T comment last week:
longshanks - 30 Jun'10 - 10:03 - 203 of 212 edit
O/T: tara7 - if you are watching - take a look at SCE if you get a chance. Interesting situation developing with MMs horribly short and house broker aggressively bidding for stock. Issued an upbeat statement "ahead of market expectations" at the beginning of June with a promise to give more detail of improving situation with the results in July. Looks like it could explode with the right type of encouragement ;)
SCE share price really beginning to motor now. The reason why I think it important is that STP (as a stock) is very similar to SCE. Different businesses completely but similar in many ways in terms of shareholder base and sentiment.
SCE was at a real bottom last January when there was a horrible stock overhang and you could buy as many shares as you wanted. They then issued results which were "so, so" and shortly afterwards, Directors and staff all started buying shares. Since then the price has come up very strongly helped by a trading statement indicating performance above market expectations.
All you need is sentiment to change and the price of unloved stocks will change dramatically. The upside for SCE when they were at 8p was huge, just as the upside for STP at 46p is now equally huge.|
|longshanks: Whilst looking at competitors it is also worth looking at Alternative Networks (AN.)
Daisy focuses on smaller businesses whereas AN. focuses more on larger SME's (between 90-1000 employees) which is more in line with STP's target market.
AN. recently released a bullish set of interim results showing EBITDA of £5.5m for the six months which I suspect is roughly what STP is currently running at on an annualised basis. AN. has a market cap of £73m whilst STP. has a market cap of just £10m. Even accounting for AN.'s stronger balance sheet, this is a huge discount.
Since the interim figures on 8th June, AN. has seen a substantial rerating with the share price appreciating 25%.
As and when STP publish their annual results and the figures are confirmed - I anticipate that we will see a huge rerating for STP towards what I see as fair value of £1.50.|
|longshanks: Another decent acquisition for STP.
I have been doing some maths.
Since November last year, STP have made six acquisitions. In total they have spent some £14m on these and in the process have bought historic turnover of these six businesses of some £17m and combined EBITDA of some £2.3m.
Much of this £14m is funded on loan notes paying 10% interest so I estimate profit before tax on historic earnings for these six businesses at some £0.9m.
One could say therefore that the acquisitions are pretty much at fair value representing a return of some 6.5%.
However looking at the ability of STP to sweat assets through cross-selling and the picture improves somewhat.
We can anticipate revenues and to increase some 18% on these businesses to around £20m for the coming year and EBITDA to increase by some 22% to £2.8m. This would give a profit of £1.4m and a return on the borrowings of nearer 10%.
Given the extreme levels of leverage that they are exploiting the picture in terms of ROCE is even better - with the overall business looking to deliver in excess of 30% with the share price at the current low point. Should the loan notes be converted ROCE will drop but still be impressive for a growth business such as this.
It will be interesting to get some figures for the full financial year but at the moment the share price looks cheap.
Free float is only about 2.7m shares... When this starts moving it will move very quickly.|
|oracle28: STP should be worth around £40M!
Daisy have around £35m cash in their coffers at the interim results Dec 2009
If STP doesn't start looking into supporting the share price they could come under attack just as they start to grow substantially.|
|oracle28: Longshanks what's your take on the under performance of the share price?
The company must be making decent profits now!|
|longshanks: good to have an update.
Mixed bag of performance for the half year...Spititel business powering along, with Spiritel technologies becoming a real basket case.
The trading update though is excellent - in review of the last quarter. EBITDA of £2.3m puts this on a P/E of less than 4... without the technologies business though the P/E is just 3!
Share price is just too cheap at the moment.|
|ont_ball_city: if penta convert their loan notes at 40p, which they will I am sure, then they will own 25m extra shares or 39,556,212 out of the then total shares in circulation of 42,649,410.
Thats 93% of the company.
And serious dilution. I am struggling to see how the share price can rise in the face of all this.
Once the dilution occurs, the market cap will have more than doubled to £21m odd IF the share price manages to stay at 50p. I am inclined to say that a jump in valuation in the company of this scale is unlikely, therefore, are we not looking at the share price going down in the medium term.|
|rcktmn: companies share price always falls back when consolidated ! the higher price the mms more scope to drop the price....with no news, or poor news, this'll drift down to about 25p-30p...I'll be in for more then ! This has always been a jam tomorrow share so will wait a few more yrs until it finally comes good!(imho)|
Spiritel share price data is direct from the London Stock Exchange