Uniti Group Limited

UWL Details

Update on Acquisition of OptiComm: Uniti Group Limited (ASX: UWL) is an internet service and a telecommunication provider, that uses fibre and wireless technology. As on 1 October 2020, the market capitalisation of the company stood at ~$748.44 million. The company has recently announced that the Federal Court has approved the dispatch of the supplementary explanatory statement with respect to the revised proposal for the acquisition of OptiComm by Uniti. The supplementary scheme booklet reflects the increased offer of $4.835 cash per OptiComm share and 0.80537 Uniti shares per OptiComm share, which implies an increased offer price of $5.85 per OptiComm share. The transaction is likely to be implemented on 30 October 2020, post the completion of voting in the favor of the scheme.  

Financial Highlights: During FY20, the company transitioned from loss-making to profitability, positive operating cash flows and net cash flow after Capex. During the year, the company reported a substantial increase of 306% in revenue from $14.3 million to $58.2 million and an increase in gross margin to 76% in FY20 as compared to 54% in the pcp. This was mainly due to strong growth in the half-year and building upon contributions from acquired businesses. The positive earnings and healthy cash flows resulted in a cash balance of ~$41 million with no debt.

FY20 Financial Highlights (Source: Company Reports)

Outlook: The company has provided guidance for FY21 and expects a run rate of over $90 million in EBITDA p.a. It also expects a surplus cash generation and is likely to benefit from the synergies. The company is expecting new market opportunities and is likely to benefit from the acquisitive expansion of CBE business.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company retains a healthy financial position and provides the platform for continued strategic acquisitive growth across all pillars. The company has a continued focus on organic growth and high cash generation. As per ASX, the stock of UWL gave a return of 33.95% in the past six months and a return of 1.42% in the last one month. The stock is trading slightly above the average 52-weeks’ levels. On the technical analysis front, the stock of UWL has a support level of ~$0.823 and a resistance level of ~$1.63. We have valued the stock using the EV/EBITDA multiple based illustrative relative valuation and have arrived at a target upside of lower double-digit (in % terms). Considering the decent returns in the past six months, resilient performance despite the COVID-19 pandemic and positive long-term outlook, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $1.41, down by 1.399% on 1 October 2020.

UWL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Sky Network Television Limited

SKT Details

Sky update on Rugby: Sky Network Television Limited (ASX: SKT) is a New Zealand based pay television company that provides satellite television and media streaming services. As on 1 October 2020, the market capitalization of the company stood at ~$227.02 million. The company continues to broadcast all premium rugby content, including the likes of the upcoming Bledisloe Cup and The Rugby Championship matches, in New Zealand under the ongoing SANZAAR arrangements. The company also has a separate partnership agreement with New Zealand Rugby, wherein SKT retains exclusive rights to any non-SANZAAR matches and competitions played in this country until 2025.

FY20 Financial Highlights: During FY20, the company reported decent performance with an increase of 35% in revenue to $747.6 million and an operating profit before impairment of $44.9 million. Despite the challenges presented by the outbreak of the COVID-19 pandemic, the company witnessed strong engagement and viewership levels for its satellite and streaming services. The company continued to grow its customers achieving a record year-end total of 990,000 and saw a meaningful rise in satellite customer retention rates with a reduced customer loss to 5.5% from 6.4% in the previous year.

FY20 Financial Highlights (Source: Company Reports)

Outlook: The company has provided guidance for FY21 and expects to report revenue in the range of $660 million to $700 million and EBITDA in between $125 million to $140 million. The company also expects NPAT to lie in the range of $10 million to $20 million and is likely to incur a capital expenditure of $45 million - $50 million in FY21.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company has re-positioned itself as a leading multimedia organization, which is rapidly transforming to meet the current and future needs of its customers. SKT has a clear path towards significant opportunities and retains a healthy financial position. As per ASX, the stock of SKT gave a return of 4% in the past one month and is trading close to its 52-weeks’ low level of $0.101, proffering a decent opportunity for accumulation. On the technical analysis front, the stock of SKT has a support level of ~$0.102 and a resistance level of ~$0.435. We have valued the stock using the EV/Sales multiple based illustrative relative valuation and have arrived at a target price of lower double-digit (in % terms). Considering the attractive trading levels, decent returns in the past one month, healthy financial position and positive long term outlook, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of ~$0.130 on 1 October 2020.

SKT Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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