VTL - Vital Telecommunications (formerly Team Talk)

[Southern Lad]

Thanks Snoopy - appreciate your backgrounder which helps sets the PSN scene for me.

[financewiz]

Any thoughts on if the Amazon facility being planned for Auckland will be a positive or negative?

[Snoopy]

Vital 'Wired Networks'

Consists of two wholesale fibre communication networks, one around the CBD in Wellington (acquired) and the other around the CBD in Auckland (built in house). The electronics on the end of the fibre have concurrently been updated to produce a more flexible product package range that tops out for maximum speed at 10Gbps (slightly higher than the maximum 8Gbps offered by top line Chorus hyperfibre). 'Citylink' serves business (including Dimension Data and Datacom) and the telecommunications industry (including Spark, Vodaphone and 2 degrees). 'Citylink' also offer cloud based data storage capability to customers in Wellington and Auckland, and provide peering exchanges for ISPs to share data.

Any thoughts on if the Amazon facility being planned for Auckland will be a positive or negative?

I had forgotten that 'Citylink' did their own cloud storage, before looking back at my own post to confirm that they did.

Amazon proposes to spend $7.5billion on their NZ datacentres (although the fine print does say the $7.5 billion was calculated over 15 years, and included the cost of building at least three data centre zones and stocking them with hardware, plus operating costs including utilities and salaries). The total market value of Vital is $28.6m, and the Vital Data Centres would be worth just a fraction of that. This brings into sharp view what a niche player Vital is in 'cloud storage capability'[.

If you look at this Herald article:

https://www.nzherald.co.nz/business/...EB5YJXKIT6S5A/

the overall picture is that Amazon AWS has 50% of the world data storage market. You would think with this kind of market power, Amazon AWS would have the capability to see of the likes of Vital as you or I might slap down a sand-fly that has just landed on our leg. But would Amazon even notice a competitor as small as Vital?

I get the feeling that Vital would supply 'data storage' as part of an overall internet access and connectivity package. My gut feeling is that they won't be affected by the likes of Amazon and Microsoft building giant big data storage centres in Auckland. But I could be wrong.

I found more information on other niche data centre providers here:

https://www.datacentre.co.nz/testimonials/

Feenix Communications?, Quickweb?, Solarix?, Vpscity?, Techday?, Netscope? I can't say I have ever heard of any of them. Are they all scheduled to be executed with the arrival of the Amazon AWS sword? Even Spark is getting into this data storage game! I am a little worried that everyone seems to have decided this is a profitable space to get into. I guess the key to survival for the small guys will be picking just the right niche.

SNOOPY

[Onion]

I had forgotten that 'Citylink' did their own cloud storage, before looking back at my own post to confirm that they did.

I think they offer connectivity to cloud storage, not the storage.

[Onion]

The Annual Report is out.

I can't see anything particularly remarkable from a quick read.

Revenue is down but lower finance costs mean a growth in profit.

The next year or so will depend a lot on the outcome of their bid for the Public Safety Network. They say they are well equipped to win the competitive tender process. It is an opportunity for a bit of growth.

[Snoopy]

The next year or so will depend a lot on the outcome of their bid for the Public Safety Network. They say they are well equipped to win the competitive tender process. It is an opportunity for a bit of growth.

The result of the bidding process is out and Vital were not the successful bidder! This looks to be a disaster unfolding for a highly leveraged company seemingly being outcompeted by others in their core business area of expertise. Share price is down by 19% today so far at 55c. But bidders are only starting to line up at 50c. So more carnage to come.

Vital are putting on a brave face:

"Vital remains open to partnering with the down selected parties to assist in the outcomes that PSN and emergency services require."

But surely Vital must now use whatever cashflows remain (the St John's contract has a few years to run) to urgently pay down debt. I wouldn't be surprised to see the need for a cash issue to shore up the company. Truly a nightmare day for Vital shareholders. Thankfully I am not one of them. But I don't rule out getting on board as a 'white knight' at the right price of course. Sympathy to current holders!

SNOOPY

[Onion]

The result of the bidding process is out and Vital were not the successful bidder!

I’m surprised the announcement is not flagged as price sensitive.

[Onion]

The next year or so will depend a lot on the outcome of their bid for the Public Safety Network.

It certainly went the wrong way for VTL.

[financewiz]

I picked up some today, it's a buying opportunity at a reasonable discount to NTA.
They are a good team with a good business but felt that they were pinning too much of their hopes on this but you have to be in to win don't you. St Johns is only 8% of their revenue with doesn't impact them until 2025.
Losing this is not great but they can focus on other opportunities in the market. They are vulnerable to takeover at this price level which is not really a scenario I favour but we'll see

[Snoopy]

I picked up some today, it's a buying opportunity at a reasonable discount to NTA.
They are a good team with a good business but felt that they were pinning too much of their hopes on this but you have to be in to win don't you. St Johns is only 8% of their revenue with doesn't impact them until 2025.

Yes, I saw that "8% of operating revenue" figure in the CEO's AGM address.

'Operating Revenue' - 'Other Income' = $35.239m -$0.136m = $35.103m (AR2021 Note 7)

8% of that is 0.08 x $35.103m = $2.808m

In some ways I am surprised the annual revenue from St John is not higher. But I don't see all that much scope for reducing running costs in the future. This must be, from a Vital perspective, quite a significant historic capital expenditure, - with the ongoing operating costs contained to run on the smell of an oily rag.

The real problem with this underlying situation is that the segmented EBIT from the 'Wireless Network' was only $200k last year. Pull the St John revenue off that figure and this much trumpeted new digital radio network is now losing $3m per year. With overall EBIT for the whole company being $3m, that reduces overall company EBIT to zero. And annual interest bills of some $2m, which we know will increase are yet to be paid.

The size of the bank loan is $15m and growing and there is no income there to pay the interest in a rising interest rate market. It is hard to imagine a situation that is more dire than this.

Losing this is not great but they can focus on other opportunities in the market. They are vulnerable to takeover at this price level which is not really a scenario I favour but we'll see.

The last takeover offer from Spark was rejected when Grant Samuel suggested the company might be worth from $1.532 to $2.11 per share, subject to working through the business development plan. It now appears Spark was right as Vital management have failed to deliver. I understand the attraction of investing in a company when it falls into a hole financewiz. I use this same modus operandi myself. But if a company falls into a hole, the next question is, what is the spade they have to dig themselves out. With crumbling sales on their wired networks as well, I just don't see one.

SNOOPY