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Member
WCG to announce results Sep 5. For The Record had a major contract in the second half, so I expect a good result (probably better under GAAP than IFRS due to executive options issued), made even sweeter by an increase in the currently token dividend.
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Member
And here we are....
Not a bad result at all (all figures under IFRS).
Market cap = $69.3m.
Revenue = $58.4m + 16%
EBITDA = $15.2m + 16%
EBIT = $7.3m + 40%
NPAT (pre goodwill amortisation) = $6.5m
NPAT (after goodwill amortisation)= $5.0m + 26%
Free Cash Flows = $7.0m
EPS (pre goodwill) = 14.7cps
Div = 2.5c + 150%
Some ratios:
Price/Sales = 1.2
Price/EBITDA = 4.6
Price/EBIT ratio = 9.5
Price/Earnings (pre goodwill) = 10.6
Price/Free Cash Flows = 9.9
Yep, this one's a keeper. It's currently being valued as a no-hoper stalwart when in fact it's a fast grower. The high free cashflows is especially impressive given the very high rate of growth. How many fast growers do you see trading at a price/cashflow of 9.9?? The dividend has been kept modest as WCG uses these free cashflows to rapidly pay back $6m of the large amount of debt ($11m) it took on this time last year to buy all of WPL. Most of that debt has now been paid off (only $5m left), so we can expect (1) increased investment in growth this year and (2) higher dividends. Up to $1.55 today...perhaps higher in the coming days as the result sinks in?
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Junior Member
Oneup
I've only quickly looked at the results but it looks as if $1.5m of goodwill can be added back to the figures you quote-but then need to be offset against option issue to directors.Looks like theres at least a page on how directors remuneration is determined-perhaps this explains the md comments to you regarding getting small investors to buy stock.
FTR looked like it might have had an unusually high( perhaps not repeatable ?)profit and revenue - but then again they gain credibility in extending the courtroom bus beyond courts.
HWG looks to be going gangbusters as well-hope WCG will end up with a fair share of large co mission critical business-at least there looks to be the financial clout to not require debt or capital raising and a couple of ex premiers on board.
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Member
For those who are interested in WCG's operations and outlook, I have c&p'd a few pages from the annual report, detailing first the outlook for the web hosting business and second the outlook for For the Record...
[u]Web Central outlook</u>
WebCentral has seen continuing growth in its core segments of shared and managed hosting. In line with market forecasts by research firm IDC, the company expects growth rates in shared hosting sales
will continue to slow and demand for managed hosting services to continue to increase.
Strong demand for managed hosting from corporate & enterprise customers WebCentral’s managed hosting division provides large clients with high performance, high security managed hosting solutions and round the clock technical support. These solutions are tailored for each client to deliver tangible business outcomes and are backed by service-level guarantees.
This division has experienced strong demand in the past six months, with particular emphasis on corporate messaging services, business-critical application hosting and critical database hosting such as Microsoft SQL and Oracle solutions.
A major factor in the future success of this growing division is the trend towards the recentralisation of IT services by businesses. This key industry trend is seeing corporate and enterprise clients increasingly seeking to minimise risk by outsourcing these sophisticated, resource-intensive installations to a proven
specialist provider like WebCentral.
Wholesale customers expanding product range to include high value products
WebCentral has wholesale contracts with a range of telcos and ISPs that resell its shared hosting and related services under their own brand. In addition to the hosting products provided, WebCentral
leverages its existing customer service systems to support these wholesale partners with value-added services such as pre-sales assistance, telephone and online technical support and billing facilities.
In the past year, growth in wholesale revenue has been strong, due in part to several bulk customer migrations to the WebCentral platform and the successful introduction of new products like Managed
Exchange and Promotions Manager to these customers. Some of the company’s wholesale partners are now seeking to expand the range of WebCentral products that they offer beyond the shared hosting
range and the company is seeing demand for its high value managed hosting and ASP product range from these wholesale partners.
Increased demand for corporate messaging services, based on Managed Exchange, has been seen company’s wholesale customers, with two large premium corporate email solutionsbeing implemented during the year and further installations and upgrades planned in the coming 12
months.
Solid demand for new ASP products
WebCentral’s shared hosting division provides a range of affordable, feature-rich technology products to small and medium business customers. In recent years, the shared hosting product range has
expanded significantly beyond traditional hosting services to include premium email, email marketing, broadband and e-commerce solutions.
The breadth of services offered by this division and its high customer service standards have made WebCentral a ‘one stop shop’ for technology products with Australia’s small and medium business
sector. WebCentral continues to leverage its market leading position, trusted brand and reputation for innovative product development to consistently grow its shared customer base.
WebCentral’s shared hosting division continues to perform well, providing a steady revenue stream. Several new products that complement the company’s core shared hosting offerings, such as the
SiteShop ecommerce tool and SpamDefend junk email solution have been released in the past few months.
ASP product range to boost revenue Since 2003, WebCentral has invested in developing a range of complementary ASP products suitable for its shared customer segment. Its first-mover advantage as an ASP provider has created a st
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Member
I don't really follow HWG, but would note that it made NPAT of $1.05m or 21% of what WCG made while having a market cap of $44m or about 65% of WCG. I recall putting the question to Spicer whether WCG would consider acquiring HWG, and he thought they were too expensive.
Very fair to add back goodwill amortisation Micro, how forgetful of me! [:I] I have adjusted the figures above. Indeed, the IFRS NPAT pre goodwill is probably the best measure of the result. This is because IFRS NPAT pre goodwill does account for the loss of shareholder value caused by WCG's (modest) options and share issue incentive schemes, which Free Cash Flows and GAAP do not. I'm actually a little disappointed that WCG did not lead with the NPAT pre-goodwill figure.
On the operational results for the web hosting division (WPL), Spicer is targetting growth in the higher margin managed servers market space. WCG managed to get 25% growth in the managed servers; the lower margin shared servers grew by 14%; wholesale grew by 44%. WCG appears to have increased market share in all market segments.
The predictions about the hosting division's (WPL) NPAT I made back in December 2004 have been spot on (excel spreadsheet can be found here: http://www.sharescene.com/index.php?...post&id=103744). I forecast $1.58m for 1H05, the actual was $1.55m. For 2H05, I forecast $2.46m, the actual was $2.43m. These results do not speak for my forecasting skills, but the highly predictable nature of WPL's growth. What's in store for WPL this year? Well, my excel spreadsheet tells me WPL alone will make $7.41m for FY06, and $3.25m in the first half ( that's after goodwill, but before unallocated corporate overheads).
And let's not forget FTR. The $7m contract with SAS continues until the end of calendar year 2005 (i.e. roughly half of the SAS contract profits will be included in the first half 2006 results). Given this contract, FTR can probably manage the same result of $1.0m for the first half of 2006 as it did for the second half of this year (NPAT before unallocated corporate expenses). As to your note about FTR's profits being lumpy Micro, they are indeed. But more variability does not mean FTR will make a loss, and FTR is not the main contributor to the group's bottom line anyway.
OK, so WPL ($3.25m) and FTR ($1.0m) combined gives WCG a 1H06 profit of $4.25m. Adding back goodwill ($0.75m) and subtracting unallocated corporate overheads ($0.8m), I forecast a NPAT of $4.2m for 1H06.
In the second half, I guestimate that FTR will make only $0.6m
(after goodwill but before unallocated expenses). So, what profit can we expect from the group? WPL ($7.4m) + FTR ($1.6m) = $9.0m. Subtract corporate overheads ($1.6m). Add back goodwill ($1.5m). I forecast WCG will make $8.9m NPAT before goodwill this year. The key for WCG to achieve that result will be to increase margins at WPL.
Needless to say, this year should be a good one for WCG holders. With a (fully diluted) market cap of $69.3m, that puts WCG on a prospective PE of 7.8. For a fast grower. If on top of the fantastic expected operating performance we get a PE (before goodwill) multiple increase from the current 10.6 to 20 (which is very reasonable for such a high growth company), then we could be looking at a market cap of $180m or +200% share price performance over the next year. An even more modest PE of 15 would see a market cap of $134m (or +120%). It's hard to say when such a re-rating will happen, but this is not a trading stock IMHO. Buy and hold for a long time.
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Member
Thank you for drawing this to our attention, OneUp. I have friends in the biz and am making enquiries.
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Member
No worries Steve, looking forward to what your industry insiders have to say about WCG if you're happy to share it with us.
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Member
"Industry insider", not quite I'm afraid. But here are the words of my experienced web-monkey friend.
"They're quite big in Oz; we had several of the sites of companies we acquired on there, they were always fairly good to deal with. They seem to be pretty well put together and have lots of different options (Microsoft partner blah blah). Compared with the sort of pricing you get out of the US though they're fairly steep."
Make of that what you will. Said mate of mine would be reasonably hard-bitten so it's good to hear a positive response from a customer/reseller POV.
Personally I think hosting is a great business. Long-term income streams, high switching costs for your big customers, marginal costs low, little labour required when done right.
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Member
Thanks for that Steve.
I agree that WCG's in a great business for the long term: reliable income streams, inelastic demand, impressive long term growth rates, high margins and the ability to differentiate. Importantly, hosting is an economies of scale business that WPL dominates (twice the size of the next biggest). If there were ever a price war, WPL would win it. Low risk fast grower at a cheap price. I haven't seen anything better for a long time.
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