Short Term Trading Week Starting: 8th May, page-56

STTCOMP FSG, FA LONG

Field Solutions Group
fpo: 363.5m

• 133m offer shares plus 34m current SOI from FRE shell
• 185m consideration shares (24month escrow), plus 10m for director and facilitator shares

mc: $10.9m @ $0.03c
Cash: ~$3.8
FY16 Revenue: 5m
EV: ~$7.1m
In my opinion, this will fly. Low EV. Tight structure, tightly held. Pretty much everyone got scaled back by around 80% (I should add that I wrote this bit ages ago when I wrote the note. But to see this close at 3c is quite frankly ridiculous, but perhaps indicative, how many people are being burnt by Nanocaps at the moment, or more of how bad Pattos are at managing a register, although I heard CPS sold some too.. Anyhow I bought some more today, and I guess that means opportunity for others if you've got some spare coins)

From my research the main attraction of this business is in the company’s ability to provide Telecommunications to regional areas. Basically, they are putting fibre and wireless networks in local councils and thereby creating infrastructure where there are gaps in the NBN Rollout. In addition, to this, they provide managed cloud services and consultancy work. In essence once the infrastructure is in place there becomes a range of complimentary work regarding other local business wanting access to better internet and cloud services. Their ability and key competitive advantage in so far as I can tell is that most cloud services do not work in Asymmetrical connections, (where the upload/download speed is not the same), which is native to the NBN.
Most will already know or appreciate that rural areas suffer in terms of connectivity and speed, and the NBN has not been able to service all regional areas fully. FSG teams up with local councils in the form of local grants, as well as the proposed money from the smart cities program, to significantly lower the up-front capex cost to the company and council to roll it out. In my conversations with management, they believe they are the only serious player looking at the regions for fibre and wireless rollouts, and that it’s not a serious threat to the majors at this stage** (See SH below)
They are in talks with at least 10 different regional councils, so the growth opportunities suffice to say are huge. It’s important to note that whilst their main focus is on the telephony with councils, there is also a range of flow on work that comes with cloud integration and consultancy and software applications
Management –

• Andrew Roberts CEO – Ex Rubik CIO (his holding Convergent Technologies will hold 56% of stock post issue)
• Ken Carr Chairman – Ex Rubik MD, former CEO of Inteq (ITQ)
• Wayne Wilson – Also Ex Rubik
• Mithila Nath Ranawake – Ex CEO of Konekt (KKT)

It’s important to distinguish that 3 of these guys left Rubik at or near it’s peak.

Revenues




Who are FSG?
FSG, which was founded in 2012, provides private and generic cloud hosting
services, and is a licenced Australian telecommunications carrier providing
services via its own telecommunications network to regional and rural Australia.
FSG’s business focuses on being a telecommunications carrier, specialised
software developer and provider of cloud technology infrastructure,
applications and services
FSG Products and Services

1. Managed Services -40.5% FY 16 Revenue
2. Telecommunications 0.2%, however, 10% forecast for FY17
3. Software – 55.8% FY 16 Revenue
4. Cloud Services

FSG and its business (from prospectus)
The industry is characterised by high levels of market concentration with four
main industry players (Telstra Corporation Limited, SingTel Optus Pty Limited,
Vodafone Hutchinson Australia Pty Limited and TPG Limited) accounting for
approximately 90% of industry revenue1. Since deregulation in 1997, industry
competition has significantly increased, saturating the market given the isolated
and relatively small size of the Australian market. Whilst competition remains
strong, industry competitors look to untapped and niche markets in order to
increase market share whilst differentiating product offerings to gain market
share from competitors. Even with the advent and rollout of the NBN, regional
and remote Australians, particularly business customers, have been left behind.
Much of regional Australia cannot take advantage of cloud services due to the
lack of symmetric capacity and limited bandwidth delivered by the NBN in those
areas.
FSG has a key focus on business-to-business cloud based symmetrical solutions
and providing services to customers in regional and rural Australia. Customers
include local government organisations such as Hornsby Shire Council and Coffs
Harbour City Council, State government organisations including Transport for
NSW and Hydro Tasmania, national organisations such as Surf Life Saving
Australia, and educational institutions such as The University of Sydney.

FSG has the ability to provide business ready symmetrical networks. The national
broadband network (NBN) is an asymmetrical network providing higher network
download speeds for domestic users (e.g. for downloading films and other
content). Business users however need both download and upload speeds to
have the ability to provide business quality services such as voice, cloud services
and interactive applications in real time. This predominantly requires a high
bandwidth symmetrical network which is what FSG is focused on building for its
own fibre and wireless networks.

FSG sees large potential in working with local councils to build local infrastructure
to help regional and rural businesses, particularly agribusines