5G Networks Limited

Exponential Revenue and EBITDA growth against prior period: 5G Networks Limited (ASX: 5GN) aggressively pursues Cloud, Digital and Data Networking opportunities that enhance its current business, both organically and through strategic acquisitions coupled with other data connectivity and managed services in the business to business market.

The company announced that it will hold an Extraordinary General Meeting of shareholders at the Melbourne office of Cornwalls, at 11.00am AEST on Tuesday 4 June 2019. Moreover, one of its substantial holders, JD Management Group PTY LTD, JMD Superannuation fund, Studio Incorporate PTY LTD and Joseph Demase, has decreased its voting power to 25.46% from earlier 31.62%.

The company recently announced that the transaction for Melbourne Data Centre is completed.The $1.75 million shares will be issued to existing shareholders of Melbourne Data Centre, with 50% being escrowed for 6 months and the remainder being escrowed for 12 months.


Revenue & EBITDA Growth 1HFY19 (Source: Company Reports)

Reported revenue for the group to December 31st was $23.576 million as compared to $1.134 million in H1 FY18.The transition to service-based revenue and the growth in multiproduct holdings has contributed to the company’s success. However, the net loss stood at $1.460 million as compared to $0.008 million in H1FY18. The normalised EBITDA in 1HFY19 was $1.385 million, a substantial growth when compared to $94k EBITDA for the previous corresponding period.

These strong results are in accord with expectations for the 5GN business and are inclusive of new contained in AASB 16 and all abnormal acquisition costs of Anittel and Hostworks, which were finalised in Q1, FY19.Moreover, the company had a strong performance with quarterly cash receipts of $15.4 million up by 8% on the previous quarter, with YTD cash receipts at $38 million, a significant increase at 11 times greater than the previous period last year.

Strategy going forward: Operationally, the company will continue to execute, develop and deliver results which support revenue and EBITDA growth. Future capital investment of the company will be funded through operational cash flow and is closely linked to customer demand, which is demonstrated with total capital spend of $398k for HY1.

The stock has generated significant YTD returns of 142.86%. With an established banking facility with CBA to support current and future funding requirements, and strong sales and EBITDA growth against the previous period along with recent developments in cash flow position, the fundamentals look decent. In the backdrop of strong operating cash flow and $1.3 Mn franking credit in 1HFY19, the management provided a strong level of confidence to issue a full year dividend payment. Hence, considering aforesaid facts and current trading level, we maintain our “Hold” rating on the stock at the current market price of $ 1.120 per share (up 9.804% on 3 May 2019).
 

Engage:BDR Limited

Significant Increase in Programmatic Revenue: Engage:BDR Limited (ASX: EN1) reported its programmatic revenue at the end of the first quarter of 2019 was significantly stronger than anticipated by the Management. The average result for the reported period came in at ~A$48,000 per day, an increase of 323% than the daily average at the start of the same quarter. The 1Q of 2019 was the strongest close of a quarter for the programmatic product over the past 12 months.

The company recently communicated a new six-figure IconicReach client, Jamaican-American singer and songwriter, Sean Kingston.The management is keen and looks forward to associating with him as initially he was the founder of MySpace and became an international music icon at a very early age. Moreover, as a part of the paid social strategy, the company has recently deployed Facebook advertising.


Average Daily Programmatic Revenue (Source: Company Reports)

The month of April 2019 yielded the strongest revenue in company history for the programmatic exchange with the company achieving nearly a 200% growth in average daily revenue in April 2019 when compared to Q1 2019 driven by the deployment of A$1.35 million to activate incremental publishers for EN1’s programmatic advertising business and new client onboardings to its IconicReach platform. The net cash from operating activities improved by A$3.9 million or 69% Y-o-Y, with the cash outflow decreasing by A$4.9 million or 57% Y-o-Y. The cash balance increased by 253%.

The asset turnover ratio improved to 0.83x in FY18 from 0.73x in FY17, an increase of ~13.7%, primarily on the back of improved sales, however most margins were on a declining trend.

Moving Forward: The company plans to spend much more time in Australia in 2019 to build closer relationships with its shareholders and stronger ties to the country and look forward to the prospects of a fruitful new year.

The stock performance remained volatile, with returns of 68.0% and -25.00% over the past three months and six months period respectively.  By looking at a significant growth in revenue in 1HFY19 and volatility in the stock price movement, we, therefore, recommend a “Speculative Buy” rating on the stock at CMP of $0.043 (up 2.381% on 3 May 2019).

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