Superloop Limited

SLC Details

Acquisition of Exetel: Superloop Limited (ASX: SLC) offers telecom services such as fixed wireless network, provision of outsourced cloud, cyber safety services to wholesale, enterprise, and channel customers in the Asia Pacific region. As per a recent announcement, the company has acquired Exetel Pty Ltd for $110 million to scale a profitable market share. Further, it expects to deliver cost synergies of at least $5 million per annum and enhance EBITDA and balance sheet capacity.

Resignation of CFO- The company’s CFO, Lidia Valenzuela, has resigned, effective on 31 August 2021. Luke Oxenham has been appointed as an interim CFO until Lidia’s replacement has commenced effective 1 August 2021 for a smooth transition of Linda.

H1FY21 Financial Performance:

• The company has reported an EBITDA growth of 99% to $8.2 million in H1FY21, compared to $4.1 million in H1FY20, driven by strong underlying recurring fibre connectivity.
• SLC has recorded an increase in its revenue by 4% to $53.3 million in H1FY21 against $51.3 million on a pcp basis.
• However, the company has incurred a loss of ~$18.4 million in H1FY21.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: Due to the COVID-19 pandemic, the international border was closed, and effects on education and hospitality sectors have impacted the company's earning and still, the uncertainty prevails.

Outlook: The combination of SLC and Exetel is expected to result in EBITDA uplift of 89% for FY21. The proforma FY21 revenue is expected to be uplifted by 135%. The company has reaffirmed a standalone EBITDA guidance of $18- $18.5 million in FY21.

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

Source: 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: The stock of SLC is trading below its average 52-weeks' levels of $0.838-$1.254. The stock of SLC gave a positive return of ~0.568% in the past one weak and a negative return of ~19.15% in the one year. 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 can trade at a slight discount to its peer average EV/Sales (NTM trading multiple), considering the COVID-19 pandemic impact and negative bottom-line growth. For this purpose, we have taken peers such as MNF Group Ltd (ASX: MNF), HT&E Ltd (ASX: HT1), RMA Global Ltd (ASX: RMY), to name a few. Considering the EBITDA growth, strategic acquisition, projects in the pipeline, current trading level, valuation and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.885, as on 6 August 2021, 10:47 AM (GMT+10), Sydney, Eastern Australia.

SLC Daily Technical Chart, Data Source: REFINITIV

5G Networks Limited

5GN Details

Substantial Holders Update: 5G Networks Limited (ASX: 5GN) operates as a licensed telecommunications carrier that offers data connectivity, data centre, cloud-based solutions and engages in search engine marketing and social advertising campaigns for businesses in Australia. As per a recent announcement, Cirrus Networks Holdings Limited has become a substantial holder of the company  with 82,323,375 ordinary shares and 8.86% voting power. The company recently announced that its 416,667 ordinary shares, which are subject to voluntary escrow arrangements, will be released from escrow on 10 August 2021.

Q3FY21 Financial Performance:

• During Q3FY21, the company witnessed increasing demand for the 5GN Voice Bridge One Microsoft Teams product and reported revenue of $26.5 million.
• 5GN has recorded an EBITDA of $4.7 million in Q3FY21 and an EBITDA margin of 18% in Q3FY21.
• During the quarter, Webcentral recorded revenue of $14.1 million and EBITDA at $3.2 million.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to cyber-attacks and data breach threats that could impact its overall performance. Therefore, the company should invest in technology to keep it updated and maintain privacy.

Outlook: In FY22, the company expects its revenue to be in the range of $110-120 million and  EBITDA margin to be around 20%. The company is focused on migrating its customers to 5GN Networks and Cloud and launching .au domains.

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

Source: 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: The stock of 5GN is trading above its average 52-weeks' levels of $0.850-$2.440. The stock of 5GN gave a positive return of ~9.28% in the past one week and a negative return of ~46.09% in the past one year. 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 can trade at some discount to its peer average EV/Sales (NTM trading multiple), considering the impact of the COVID-19 pandemic and lower debt-to-equity ratio. For this purpose, we have taken peers such as Spirit Technology Solutions Ltd (ASX: ST1), Hubify Ltd (ASX: HFY), Aussie Broadband Ltd (ASX: ABB), to name a few. Considering the increasing demand for Microsoft Teams product, strategic acquisition, optimistic outlook, and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.990, as on 6 August 2021, 10:47 AM (GMT+10), Sydney, Eastern Australia.

5GN Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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