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  1. #1
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    Default Macquarie Telecom - MAQ

    I'm interested in others thoughts on Macquarie Corporate Telecom (MAQ)

    "Macquarie Corporate delivers proven and innovative voice, data, mobile and hosting solutions to corporate and government enterprises throughout Australia and South Asia."

    Market Cap of $53 million, currently trading at 26cents

    Company looks like it turned the corner late last year reporting EBITDA of 3.7m for the six months ending Dec 03. They issued an earning guidance of 7.4m-8.7m for the full period.

    Company has NO DEBT and 33m CASH in the bank. This effectively means the market is valuing their business at 20million

    Revenue for FY03 was $234m

    In my view the company is primed to make an acquisition (hell they need to use that cash) or could be a target to be taken over if large shareholders brokered a deal.

    Last annual report indicates the stock is tightly held with the top 20 owning 82%. The Tedehope brothers (CEO and COO) own 61% of the company.

    Company has small but very experienced management team.

    Has been some interesting trading going on over the last few weeks with the stock testing recent highs on rising volume.

    Would especially be interested to hear comments from some of our esteemed fundies - Alban, Dimebag.

  2. #2
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    had a quick look David. One worth keeping an eye on, though I would need prefer further progress first.

    The cash position is very interesting, would be very easy to miss that on a cursory view. The performance over time is very inconsistent, not sure why the EBITDA plunged to losses of -17.7m and _15.6m in 2001 and 2002. Revenues are declining, due to the reduction in calling revenues (reflecting competitive pressures, though profits in this business are still improving).

    Also, note that capex has pretty much been at depreciation levels and is forecast at $8-$10m this year, so they are still burning cash even if they achieve the EBITDA forecasts.

    Hard to value a loss-making company. I approached it from what would EBITDA have to improve to, before MAQ achieved a PE of 10 (excluding for cash).

    I assumed cash of $26m was free (note that at June 03 current liabilities were greater than current assets, excluding cash, so some of the case should prudently be held for working capital purposes). SO MAQ would need NPAT of $2.6m, and assuming a tax rate of 30% (conservative, since they have some tax losses) and deprecn of $9.1m, would need EBITDA of $12.8m, to get a PE of 10. If they achieved EBITDA of $8m this year (middle of their forecast range), they would need to grow it by 60% next year, to get a PE of 10 next year. That being the case, I'd rather wait to see them achieve (or confidently forecast) those sorts of nunmbers, before buying.

    On the other hand, they could use the cash for a good acqisition. A few telcos have been buying iiNet and Optus for starters), not quite sure why MAQ are sitting on their hands. Couple of other things the Singapore story seems a bit weak (not sure why they are trying it; revs declined in the last half) and their are around 6m options in the money.

  3. #3
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    James

    Thanks for your thoughts.

    Announcement out on the 26th July confirms position for current year.

    "The Company reaffirms its Earnings before Interest, Tax, Depreciation and
    Amortisation (EBITDA) guidance for full year (FY04) of $7.4 million to $8.7 million."

    But as you say still someway to go before they can claim true profitability.


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    Have been holding these for a while based on positive press statements, tight management, and little to nil debt.

    Company is in a strong position to leverage earnings through its telecom markets.

    Do not appear to be reinvesting much into loss making parts of the company, hence decreasing sales in these areas. Not always a good long term strategy, and makes things look artifically good short term.

    Regards
    Firefly

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    I got out of these around 22cent about 9 months ago.

    Price taken a hammering recently.

    Now trading at 10.5c and a market cap of 21m

    The kicker is they have 23mil in cash and are ebitda positive.

    Any comments would be appreciated.

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    Hi David. I've got a small (now tiny!) holding. I calculate that after investment plans, they would have around 12cps cash. Operating cashflows have been quite good in the past. However, they have disappointed me in that they hover so close to profit..
    Price/sales is really low, so even a small margin should make them a good buy. I am just waiting for evidence that the recent investment is going to generate new revenue. If not, I'll give up. If so, I suspect they will be my next "sure thing". Unfortunately, telecoms is an incredibly competitive area with the move to VoIP. History shows that being at the forefront of a tech revolution doesn't tend to do you any favours! Things get very competitive at the front line...

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    Macquarie inks Queensland Commerce deal
    Siobhan McBride
    08/04/2005 07:46:38

    Commerce Queensland has slashed its carrier costs by as much as 25 percent by outsourcing to Macquarie Telecom.

    The deal covers a range of convergent solutions including local, long distance and international telephony, Internet, mobile and an IP virtual private network.

    Joe Barnewall, CEO of Commerce Queensland (previously the state's Chamber of Commerce and Industry), the project's goal was to lower total cost of ownership and improve billing processes.

    "We wanted a flexible and innovative business partner rather than just another supplier," Barnewall said.

    "Macquarie Telecom was willing to negotiate on terms and conditions where others weren't. It was also prepared to address both Commerce Queensland's needs and members' needs."

    The companies have also formed a strategic partnership whereby Macquarie Telecom is the recommended provider of telecommunications services to Commerce Queensland's member base.

    The organization's membership network represents Queensland companies of all sizes including both commercial and not-for-profit organizations such as Anglicare Central Queensland.

    "Many of our members are small businesses that would not normally be able to realize such significant savings on their telecommunications and IP costs," Barnewall said.

    "The partnership with Macquarie Telecom guarantees them a minimum 5 percent saving as well as access to services, such as consolidated billing, that help them better manage these costs."

  8. #8
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    Just going to update this thread - I posted this analysis on another forum in September when the result came out:

    Some notes on MAQ following FY result:

    1. Big attraction of MAQ is that at 10cps, it is very undervalued on both an asset and revenue basis. Net current assets are 8.6cps, net cash is 11.2cps, NTA is 27cps. Revenue per share net of carrier costs = 35cps. (NB: net cash is higher than expected as capex seems to have been slower than company predicted at HY)

    2. However, excepting revenue, these have all reduced over the past year, as has the share price, and it is possible this trend could continue indefinitely (it has already continued far longer than investors might have thought possible).

    3. Underlying share value is probably around 50cps, but in order to recognise this, need margins to improve. Actually, gross margins are okay, so probably need a reduction in corporate costs. However, at the moment, these are increasing rapidly, particularly employment costs.

    4. From searching the web, it appears MAQ is fairly active and achieving many things that (unlike some companies) are not reported regularly to the ASX. However, it also seems that these activities are largely being expended just to replace traditional voice revenues and that a high level of (expensive) customer service is being proffered in order to achieve business. It is unclear to me at this stage how MAQ will translate new business gains into profits.

    5. Looking ahead, once again 2006 is likely to disappoint holders. The first check will be HY result where I forecast revenue of $116m, EBITDA of $1.5m and NPAT loss of ($2m). For FY, revenue of $234m, EBITDA of $4.3m and NPAT loss of ($3.1m). FCF likely to be close to zero across the year as further one off investment in the Metro Access Network.

    6. These results are worth watching closely though. An improvement against them would be positive. However, there is little point in investing in MAQ until early signs of future profitability become apparent. MAQ will almost certainly not be profitable in 2006. But, given the potential for a re-rate of the shares on even a small profit in 2007, it is useful to keep these shares under watch for early signs.

    7. The current pressures facing TLS probably do have the potential to be beneficial to MAQ. But degree is uncertain.

    Might be a Hold, but not yet a Buy.

  9. #9
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    Also, would note the following article which appeared on Friday in The Australian and contained some items of interest:

    http://www.theaustralian.news.com.au...55E643,00.html

    Points of note:

    MAQ looking to raise $20m for investment - this seems a little odd given that MAQ appear to have on hand more than enough cash to complete the announced expenditure plans.

    Suggestions that other companies would be interested in buying MAQ, but that majority shareholder and Chief Executive, David Tudehope, has no intention of selling.

    Further expansion planned into South East Asia

    Plans to be unveiled at Tuesday agm...

    While pretty much range trading between 10-11cps, the sp has looked a little firmer of late, with OBV starting to turn up. The agm presentation should prove interesting.

  10. #10
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    quote:Originally posted by Lizard
    There is little point in investing in MAQ until early signs of future profitability become apparent. MAQ will almost certainly not be profitable in 2006. But, given the potential for a re-rate of the shares on even a small profit in 2007, it is useful to keep these shares under watch for early signs.
    Wrote the above back in November last year. Since then, MAQ consolidated 10:1. I bought a few more at 83cps a few months ago, but the shares have been pretty much sunk in an illiquid and depressed hole.

    The full year result was pretty much as expected. Growing revenues, good margins, but another loss ($6.4m) due to growing corporate costs. They so far appear a well-presented and popular charity for corporate telecommunications users. I have waited patiently for them to announce their intention to one day book a profit, but so far patience has been unrewarded. It is also hard to get excited about a company that is investing hard cash into assets which they then depreciate faster than the average life of a mobile phone.

    Still, there is the possibility that 2007 will be the year of the profit - or at least a reduction in loss - or even an announcement that one day they might make a profit...

    In the meantime, they do occasionally provide some entertainment. Yesterday, one buyer with two 50k bids on the board moved them up from 80cps to 95cps, collecting a mere 12k shares on the way and only drawing one new offer at $1.09. For once, they aren't being sold down.

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    Well the clumsy buyer looking for 100k of these shares has nearly got there - only 8.5k left to get by my count. Managed to create enough movement in the shareprice for a few more traders to take an interest. The big question is whether this is the end or the beginning of the price movement?!?

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    MAQ now moving steadily in the right direction, with price at $1.30, though on low volume. With P/S of 0.10 and Pr/NTA of 0.6, there's plenty of value still in this one - they just have to make it profitable before they depreciate all those assets away again...

    A great example of how apparently under-valued shares can take a long time to get a re-rate - especially when large management holdings make a takeover unlikely and the controlling management puts re-investment for growth ahead of profits/dividends.

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    Time to drag this one out for an annual review.

    MAQ are finally forecasting positive NPAT in current period! Maybe at this weeks agm they'll give some indication on quantum for first half.

    Net cash now $19m, market cap $16m and in second half last year they had over $5m of free cashflow, so it's hard to imagine there can be much downside from 80cps. Then again, go back to the start of the thread and it becomes apparent that it has nearly always looked this way and yet still lost two-thirds of market cap since 2004.

    Very illiquid but I've picked up a few in recent months anyway.
    Last edited by Lizard; 23-11-2008 at 06:12 PM.

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    Hi Liz.
    I'd love to enter this discussion but got compulsorily bought out of MAQ a few years ago after the price crashed. ( Actually, I think I could have elected to keep my miserable holding but was so disillusioned by then that I let em go!)
    I'd originally bought in the excitement of the tech boom when it was thought that a number of smart new telcos were going to give Telstra a bit of a hurry up. Our old friend Telecom had similar ideas!
    So sorry, havn't followed their fortunes since but wish you all the best with MAQ.

    Cheers

    Last edited by macduffy; 23-11-2008 at 02:23 PM.

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    The problem is all TEL stocks around the world is now very cheap trading at low PEs and with a good div yield. Can MAQ compete when comparing the numbers with other telcos?
    Having got ourselves into a debt-induced economic crisis, the only permanent way out is to reduce the debt either directly by abolishing large slabs of it, or indirectly by inflating it away.

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