You know my views on this, even with the share price trending towards my range (~11c), as well as towards PTL's entry price (of sub-10c).
On the deal that has been done, PTL has ended up with the upper hand, in terms of control, pricing, dilutionary impact, expanded capital raising opporutnity, and a honeymoon period of at least 12 months, during which time, further capital will be raised by the enlarged SWT.
More to the point, the foundations (I suspect) are now being laid for the expanded SWT to monetise Crazy John's in due course (especially given that Fleiter is CJ's MD, a Director of PTL and an incoming Director of SWT, and Hamilton is a shareholder in and a Director of PTL, and Chairman of Crazy John's)
As for PTL, the burn rate here is and remains faster than that of SWT, whilst PTL's residual cash position, and short-term payables exposure remains greater than the corresponding position for SWT. This implies some urgency from PTL's perspective (ie: in accessing new sources of capital).
The biggest thing that PTL is bringing to the table is its IP /intangibles /goodwill, as it has little in the way of net assets to speak off. Yet, the dilutionary impact is being felt by SWT.
As for the iiNet price comparison, if this were true, then Telstra's share price should be closer to $8.00 than to its current range-bound $4.70-4.80.
Krusty's 33c valuation is fine except that it does not factor (reconcile) for the following: 1) Paul Budde was forecasting PTL's FY04 @$78M. That was back in May 2003 (in his 2003-2004 Telco Companies Profile Australia). The 1H04 results, however, have fallen way short of this mark. 2) PTL was quoted in (and presumably approved) MUL's press release of 25 August 2003 which quotes PTL's O'Hare and includes the quote that PT's revenues are "heading towards $100 million" (with 16,000 customers). Currently, however, the ASX Release of 12 March 2004 indicates that PTL's revenues were $26.5M in 1H04 and that it has 10,000+ business customers (more on this in a moment). 3) In B&T on 4th September 2003, Rosemary Ryan wrote that PTL "which targets the small-to-medium sized business niche, is aiming to ramp up its growth over the next 6 months and is targeting revenues of about $150M by the 2004-2005 financial year". Again, at the halfway mark of the year, PTL only had another $123.5M to go. 4) In the ASX Release of 12 March 2004, SWT's revenue estimate appears to have been: 4a) revised down to $110M in 2004-05 (as opposed to the rather more condifent assertions of August and september 2003); and 4b) pushed out by at least 12 months (as opposed to realising these estimates in FY04, as previously mooted or maintained).
Going forward, the combined business will have "more than 30,000 business and consumer customers across Australia" (ASX-R 120304).
However, in the same release, SWT was credited with 18,000 national customers, and PTL, with 10,000 business accounts "including many of Australia's largest corporate businesses".
In the more detailed ASX-R 120304(2), these numbers were given as: 1) SWT = 15,000 nationally, including 9,000 in Sydney; and 2) PTL = "over 10,000 business customers nationally".
However, back in the MUL ASX-R 250803, PTL was credited with having 16,000+ customers.
Indeed, in the original SWT /PTL ASX-R 290703, PTL was attributed with: 1) "annualised revenue of $70 million"; and 2) "over 12,000 customers".
Back in September 2002, PTL had 12,000 customers according to Paul Budde and $32M in revenue.
So, whilst the combined business currently may well have somewhere between 25,000 and 28,000 national customers, going forward, it is clear that PTL has: 1) heavily churned its customer base over the last 18 months; 2) has essentially suffered a net loss of customers (at worst), or stood still (at best); and 3) has increased its ARPU values by ~50% (or $100 per month), but at the expense of increased customer acquisition and retention costs, increased business losses, and reduced short to medium term customer margins (ie: 12 months or less).
In addition to this, it is difficult to reconcile how: 1) PTL could have 12,000 customers on 290703 (in the SWT ASX-R) and 16,000 customer on 250803 (in the MUL ASX-R), but only 10,000 customers on 120304 (in the SWT ASX-R); and 2) PTL could have annualised revenue of $70 million on 290703 (in the SWT ASX-R), revenue heading towards $100 million on 250803 (in the MUL ASX-R), targeted revenue of $150 million in the B&T release of 040903, but only $26.5M in revenue for 1H04, in the ASX-R of SWT (dated 120304).
Something rather amiss has occurred here which requires further explanation.
To build the business, going forward, PTL needs to re-engage with its customer base and gain(not lose) customers. Currently, that base would seem to have been: 1) >16,000 at 1st July 2003; 2) >10,000 in March 2004; and 3) averaged ~14,000 during 1H04.
Based on PTL's 1H04 revenue of $26.5M, the customer ARPU was $1,892 (or $315 per month), up from $222 per month in June 2002.
SWT's ARPU, by contrast, was ~$1,163 (or $194 per month), based on an average customer base for 1H04 of 5,000.
So whilst PTL is still bringing the greater proportion of revenue to the merged entity, it is likely to be contributing less profit, with DSL margins rising and voice margins contracting.
In likely profit terms, SWT and PTL are likely equal in 2004, and certainly not justified by SWT ending up with <1/3 of the merged entity.
With: 1) local call capacity being acquired from Telstra; 2) long distance capacity being lease from Telstra; 3) mobile capacity being re-sold for the Optus GSM network and for the Telstra CDMA network; 4) DSL and HDSL internet access and data networks being sourced via Request DSL; and 5) with web hosting being provided by OzHosting.com (a subsidiary of Destra Corporation), ...it is hard to see how PTL would now be commanding premium margins (in an otherwise highly competitive, heavily cannabilised, margin contracting, and price pressured marketplace).
Indeed, as UEC and ALN are now starting to find out, whilst the share price has remained around 33c, PWT was only prepared to offer 21-23c, and Babcock & Brown, ~26c, with Optus somewhere in the 24-28c range (but, no better).
Telco assets are still not commanding a premium in Australia, but the myths, the hysteria, and the highly optimistic revenue forecasts still run relatively unchecked.
I am looking forward to seeing the Independent Expert's Report when it is eventually prepared.
