5G Networks Limited

5GN Details

Agreement to Acquire Integrid: 5G Networks Limited (ASX: 5GN) is a licenced telecommunications carrier operating across Australia. The market capitalisation of the company as on 19 March 2021 stood at ~$143.96 million. As per a recent update, the company has entered into an agreement to acquire 100% of Integrid Group Pty Ltd for a purchase price of $3 million. It is payable by $2.5 million in cash and $0.5 million in 5GN shares. The company expects to realise a synergy of $0.5 million per annum in the first twelve months of integration.

H1FY21 Results Update: The company reported robust financial performance with a ~47% increase in revenue to $37.3 million, compared to the previous corresponding period. EBITDA grew by ~105% to $6.2 million during the same period. There was an improvement in the operating cash flow to $4.8 million in H1FY21 from $3.3 million in H1FY20.

H1FY21 Financial Performance (Source: Company Reports)

Outlook: The Webcentral takeover provides 5GN with opportunities for organic growth by leveraging its ~330,000 customers and offering 5GN's suite of cloud, network, and managed services. It will continue to look to identify high-value opportunities having synergies with its business strategy.

Key Risks: The Group is exposed to interest rate risk, liquidity risk, and credit risk through the use of its financial instruments. It has no significant exposure to foreign currency risk. It is also prone to interest rate risk as it holds a considerable amount of cash on its balance sheet.

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

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: As per a news release in February 2021, the company has been selected as a strategic supplier to the South Australian Government Managed Platform Services panel. As per ASX, the stock of 5GN is trading below its average 52-weeks’ levels of $0.540-$2.440. The stock of 5GN gave a positive return of ~3.27% in the past nine months and a negative return of ~12.49% in the past one month. On a technical analysis front, the stock of 5GN has a support level of ~$1.212 and a resistance level of ~$1.394. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company might trade at a slight premium to its peer median EV/Sales (NTM trading multiple), considering the impressive financial performance and the improvement in the operating cash flow performance. For the purpose, we have taken peers such as Spirit Technology Solutions Limited (ASX: ST1), MNF Group Limited (ASX: MNF), Aussie Broadband Limited (ASX: ABB), to name a few. Considering the indicative upside in valuation, impressive financial performance in H1FY21, synergy from Webcentral takeover and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $1.315, up by 4.365% as on March 19, 2021.

5GN Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Field Solutions Holdings Limited

FSG Details

Receipt of Funding: Field Solutions Holdings Limited (ASX: FSG) develops and delivers communication products and services. The market capitalisation of the company as on 19 March 2021 stood at ~$45.36 million. As per a recent update the company has received $950,000 in funding by the NSW Cross Border Commissioner to join the FSG Northern NSW Network to the FSG Southern Queensland Network. This infrastructure development will service key agri-business customers on both sides of the NSW and QLD border.

H1FY21 Financial Update: The company reported decent performance during the period with a growth of ~33% in revenue to $7.4 million, compared to the pcp. There was a significant improvement in the NPAT to $0.28 million compared to a loss of $0.35 million in H1FY20. The cash flow from operations grew by ~124% to $1.67 million. It had a backlog of $13.25 million during the end of the period.

H1FY21 Financial Performance (Source: Company Reports)

Outlook: The company plans to expand its operations in FY21 and deliver its services to rural, regional, and remote Australian communities. It believes its software will drive its future delivery and automation of IOT, mobility, and 5G products and services. It also plans to complete the rollout of NSW Sport Regional Network during the second half and also start the network rollout for MyRepublic.  

Stock Recommendation: On 28 January 2021, the company has announced that it has signed an agreement with MyRepublic Australia Pty Ltd to offer its services. The contract term is of minimum six years with $45 million in revenue. In another development the company has announced the signing of a wholesale supply, management and partnership agreement to deliver its services to FlipConnect. The contract is for initial three-year term and is expected to generate $24 million in revenue. As per ASX, the stock of FSG is trading close to its 52-weeks’ high level of $0.091. The stock of FSG gave a positive return of ~136.11% in the past six months and a positive return of ~123.68% in the past three months. On a technical analysis front, the stock of FSG has a support level of ~$0.075 and a resistance level of ~$0.091. On a TTM basis, the stock of FSG is trading at an EV/Sales multiple of 3.6x, higher than the industry median (Telecommunication Services) of 2.5x. Considering the valuation on the TTM basis, steep price movements in the past few months and the key risks associated with the business, we are of the view that most of the positive factors have been discounted at the current juncture. Hence, we suggest investors to wait for a better entry-level and give an ‘Expensive’ rating on the stock at the current market price of $0.088, up by 3.529% as on March 19, 2021.

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

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.