John Linton
.....following the original legendary king and Shirley Bassey's unforgettable "Goldfinger"?
I read with fascination David Teoh's short statement (at least a statement attributed to David Teoh) to the ASX on the progress that the merged SPT/TPG entity had made in the three months that had elapsed since the merger date. The statement was brief but cogent saying that the merged entity had made a profit of $A8 million in May following a profit of of $A7 million in April - with, presumably a similarly impressive result about to be delivered in June:
http://www.asx.com.au/asxpdf/20080626/pdf/319vchvhj453vr.pdf
These spectacularly successful results are unheard of in the Australian communications industry. In the proposed merger documentation submitted to shareholders recommending the merger the combined monthly revenues were difficult to exactly pin down but appeared to be around $A20 million a month. A profit (before tax) of $A8 million is 40% - something that has never been achieved by any company in the Australian communications industry. Even Telstra hasn't got close to such a figure and it's putative FTTN scenario is stating that an 18% ROI would be what it requires while it's opponents claim 18% is unrealistically high.
Perhaps I mis-remember the figures in the merger document and monthly revenue is much higher than $A20 million?
What makes the statement to the ASX even more intriguing is it comes against a free fall of the SPT share price from 45 cents at the time of the takeover to 19 cents at Friday's close. Perhaps the free fall in the share price accounted for the 'marketing' ring of the ASX announcement which contained an unnecessary statement that the company had "$A27 million of cash on hand" (pointless except, perhaps, in direct response to an ASX query) and the even stranger statement that "1300 hundred employees were enthusiastic with the merger". (no-one could know the level of happiness of 1,300 people, and I guess those who were retrenched could not be described as "enthusiastic").
Would the merged entity really have that many personnel - 1,300? It seems an extraordinarily high number - maybe it was a misprint?
At the current share price of 19 cents and with the Chairman of the company stating that the company is earning $A8 million a month (NBT) giving an annualised profit of $A100 million on current achievement levels and, presumably, much more than that moving forward why is the share price, not only plunging, but why wouldn't every investor (including me) who can read the presented figures and understand what 'PE' means not immediately wade in on Monday and buy as many SPT shares as they had spare investment money?
Investing in SPT/TPG at 19 - 20 cents represents, effectively, investing money in shares that are only valued at the current NBT profit of the company - no share has ever delivered such a return or been offered for sale on such a basis to my failing memory in Australia. Based on the presented figures the share price should be in excess of $1.50 and that would be at the most conservative assessment/P:E ratio. Based on the recent statments to the ASX I would be a fool not to buy some TPG shares on Monday - even if I've interpreted the various figures incorrectly the franked dividend to be declared by TPG/Soul has to be around 8 cents (a 40% return in 3 months on a share price of 20 cents) nd the shares will have to sky rocket if the stated performance turns out to be sustained reality. I could buy at 20 cents - get an immediate 40% return and then sell in a few monthsfor a North of 300% profit based on the inevitable interet this company will generate in its unique performance.
It would be interesting to know whether the 1,300 personnel is a correct figure and, presumably, the next annual report will clarify that situation. If it is correct then WestNet has been overtaken as the ISP with the highest ratio of personnel to revenue and personnel to customer ratios and yet TPG/SPT still produces an NBT percentage almost twice as good as the next best performer in Australian communications (Telstra - which while almost certainly still over staffed has a far better, by a country mile, employee to revenue ratio than TPG/Soul).
It will be interesting to see what Telstra actually has managed to achieve in FY2008 to give a year for year comparison for FY2008. I suppose it will also be sensible to see what the merged TPG/Soul's actual annual report discloses when it becomes available and, more importantly, what franked dividend it declares.
Perhaps Telstra, finally, has a real competitor in the Australian communications marketplace certainly Optus has never been able, in 15 years, to approach the margins being reported by TPG.