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  1. #1
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    Default Melbourne IT (MLB) & Web Central Group (WCG)

    Web Central Group (WCG) is being taken over by Melbourne IT (MLB) so I thought I might change the name of this thread.


    First and foremost I recommend checking out WCG’s announcement of November 10 entitled “historical financials” where the historic performance of both FTR and WCG are set out. The numbers speak for themselves.

    However, for a bit of background info…

    WCG (formerly FTR) owns two companies:

    (1) For The Record which provides recording devices to courtrooms, police, education providers etc. Steadily growing demand, with simple to operate devices and good distribution network in the US.

    (2) Web Central Group is involved in web hosting services and related activities.

    Both divisions are market leaders.

    Until recently Web Central Group was called FTR Holdings – holding FTR and 49.4% of Web Central. But a couple of months ago FTR Holdings acquired all of Web Central and changed its name to, of all things, Web Central Group.

    This acquisition was paid for with $7 million cash, raising $11 million of bank debt and issuing 2 million new shares and 2 million options. Consolidation of WebCentral will “provide access to its cashflows, enable leverage of the balance sheet and reduce WCG’s cost of capital.” Access to Web Central’s cashflows should also allow the commencement of a half decent dividend.

    Web Central has economies of scale which are crucial in web hosting and allow it to earn fatter margins than competitors. It is one the few profitable operators in the managed internet hosting space with “an impressive roster of customers and partners”. Web Central was awarded the Microsoft Provider of the Year award (the first time ever a non-US company has been awarded this).

    WCG has 38 million shares on issue and 4 million options. Trading at $1.05 WCG has a fully diluted market cap of $44 million. Last year WCG made a NPAT of $1.5m or 4.3cps, apparently putting WCG at a PE of 29. But the result for FY04 is not the relevant measure of WCG today - because it did not include the results of Web Central (which at balance date, as mentioned, was not a controlled entity) only the dividend paid by Web Central to the then FTR Holdings went to the bottom line. Now I will refer to the information released by the company on November 10. Combining FTR and all of Web Central, WCG would have earned revenue of $50.3 million in FY04 and EBITDA of $11.7 million. So it’s trading at a [u]price/EBITDA ratio of 3.8</u>.

    Insiders hold 20 million shares (about half the company).

    I would argue that WCG should trade at an EBITDA multiple of at least 10x (like IINet) and possibly up to 16x (like Melbourne IT). In which case, WCG should be valued at minimum $120m - $190m or between $2.80 and $4.50 a share now. EBITDA has been increasing about 50% for each of the last two years. If this momentum can continue, the shares could well be worth between $5 and $9 within 2 years (i.e. between a four and eight bagger). It could take until 1H05 or FY05 result (when WCG will most likely declare a dividend) for the market to really take notice.

    Outlook
    (From the Annual Report)
    Shared hosting revenues in the coming year will be boosted by the recent bulk migration of several thousand customers from one wholesale partner – one of the largest migrations of hosting customers ever undertaken in Australia. Additional benefits are also expected to accrue from the broadening of the range of products being sold across existing wholesale accounts, including managed applications such as Managed Exchange.

    The prospects continue to be positive for the WebCentral Complex division, with its credibility in the enterprise marketplace heightened by a number of significant contract signings and successful project implementations during the past financial year.

    Conclusion
    Web hosting is a competitive business, and competitive pressures could lead to EBITDA not being maintained at current levels.

    But technically WCG is trending upwards and has outstanding fundamentals. These fundamen

  2. #2
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    Hi oneup,

    It's about time people started taking notice of this outfit. I picked up some WCG (FTR) a couple of years ago back ay 37c when the markep cap was a tiny 12 mil -- on the strength of repeated insider buying by Malcolm Turnbull (might have that name wrong, he was their head dude at the time anyways). Now that WebCentral is fully above board in their books (and visible to the market in general) I expect them to go up substantially once they release their latest financials (their first as WCG). $5 to $9 in 2 years?? Who knows -- but they do appear to be doing well and are not yet being noticed to any great degree by the market.

    (Hold WCG)

  3. #3
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    It could trade at $9 if combined EBITDA continued to increase by 50% per year - ie $11.7m last year, $17.5m this year, and $26.3m next year. After two years, if WCG traded at an EBITDA multiple of only 5 it would be worth $131m ($3.10 per share), at a multiple of 10 $6.25 per share, and a mutliple of 15 $9.40.

    There is of course the assumption that earnings growth will continue at the rate of recent years, and that the ASX stays reasonably buoyant. The $11m debt WCG took on to buy all of WC may constrain their expansion this year. But WCG has strong cashflows, so should be able to pay this debt down quickly and continue expanding. WCG will not have a full 12 months from WC this financial year, but will in FY06. Also, WCG does appear to be winning substantial new business.

    Even if WCG only achieved half the assumed growth rate (ie 25%), it would be worth (on an EBITDA of 10-15) between $4.35 and $6.50 two years from now (three to five bagger).

    Out To Lunch, glad to hear you picked up this co when it was only 37c! IMO they are as good value now as then - because then Web Central was not too profitable, now WCG has acquired all of WC, and other IT stocks have rebounded strongly.

    IINET has a market cap of $242m - it earned EBITDA of $22.4m in FY04.

  4. #4
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    Hey OTL (or anyone else that knows)
    WCG announced an alliance with Unwired today. Any idea how many customers that outfit has?

  5. #5
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    Default

    quote:Originally posted by OneUp

    Hey OTL (or anyone else that knows)
    WCG announced an alliance with Unwired today. Any idea how many customers that outfit has?
    Well, I'm one but I've been feeling lonely of late. I would hazard a guess that Unwired has somewhere in the region of 5,000 subscribers. Sydney only at the moment. Could be a few less with wabbits going back under 30 day money back guarantee. They also have a wholesale user base through other ISPs, although these are not involved in the web-hosting arrangements Unwired have entered into with Web Central. Unwired wont disclose their subscriber numbers and their share price is going down, down and down to funky town.

    There may well be some interest in web hosting, particularly from small business users of Unwired. I've seen some enquiries about this on the Unwired message board. BTW, the new Unwired message board up for just a couple of weeks has 350 registered users. It has been far less active than the previous incarnation.
    We have been profoundly misleading.

  6. #6
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    If anyone is interested, Web Central Group has now risen from $1.05 when first posted about just two weeks ago, to today being bid at $1.20 and offered at $1.30. Decent number of buyers but sellers are hard to come by. Plenty more to come, IMO.

  7. #7
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    OneUp, I agree with your analysis of the real P/EBITDA ration being around 4 rather than much higher (comsec has it at about 28). Would love to buy in but with the offer at 1.29 and the last buy at 1.20, I'm a bit hesitant to buy at 7.5% above last market price. Will do my normal, wait and watch, and kick myself later when it shoots up without me

    Damo79

  8. #8
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    Damo,
    ComSec isn't disagreeing with the EBITDA as published by WCG per se, they are just using the stated figure from the latest financial report which as mentioned did not include Web Central (acquired after balance date). Comsec will update their EBITDA ratio when the full year accounts come out.

    By the way, FTR recently announced a major deal in the US to sell $7 million worth of audio equipment in calendar 2005. Seeing FTR earned $13.4 million in revenue in total last year, and earned an EBITDA of $3.2 million, this has to be very positive (and profitable) news.




  9. #9
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    I continue to find the depth chart of WCG to be very encouraging. With about 75% of the shares held by the top 20 shareholders, it seems obvious that absolutely none of them want to sell at anywhere near the current price. And with only about $40k shares on offer, there just isn't room for a large investor to get in there unless they're willing to push the price up 70% overnight [:0]. This means that only small scale buyers (wanting a few thousand dollars worth) can get in at close to the current price of $1.35 at the moment.

    I've already watched the WCG share price rise about 30% in the last month since Oneup drew our attention to it. I bought in somewhere in the middle of that, and am still very optimistic about where the share price will go when next financial figures are released . I really think I could see a doubling or tripling of the current market capetalization based on rudimentary P/E ratios [8D].

    Fingers crossed. Now to continue working on the wife to let me take a little more money out of our mortgage redraw facility so I buy some more .

    Happy new year all.

    Damo

    Holds: WCG, MSC[|)], SEN[|)], SNN, RAC, BGN[V]

  10. #10
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    Default

    I'm also holding this one since Oneup bought it to our attention. I have done a little research and think it will be a very good performer over the medium term.

    cheers
    mark

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