being revalued..., page-4

re: up 25% today Hi extralite,

Yesterday you asked my views regarding DFT.

I used to know DFT from the perspective of its VNT operations when they were first floated (@20c, and merged with DFT [email protected]).

DFT does have some of its own backhaul network in place but this is rather small relative to the scale of its offering.

Customer receipts were $3.6M in Q2-FY04 vs $3.4M in Q1-FY04.

Trading revenue was $7.3M for the 1/2 year.

With the recent acquisition of Planet Netcom, DFT now has a reported 100,000 active accounts.

Since July last year, DFT has added the following ISPs to their network:
1)
Impaq Australia = 2,000 active accounts;
2)
EZ Web = 4,000 active accounts;
3)
Keypoint = 25,000 active accounts.

Throughout 1H-FY04, DFT averaged between 50-60,000 active accounts (likely average = 55,000 active accounts).

Trading revenue for 1H-FY04 was $7.3M, meaning that the 6 month ARPU values were $132, ~$22 per month, or $264 annually.

Even at an average of 40,000 active customers, the ARPU values were $366 annually, $183 for the 6 months and ~$30 per month.

Even SWT's monthly ARPU values are averaging >$140, or $840 on a six monthly basis, or $1680 on an annual basis.

As a sustainable ARPU figure, DFT's figures are quite low and, until they start exceeding $60, are unlikely to result in any sustainable re-rating of the share price (ie: above 2c).

Going forward, DFT's active customer base will likely average 90,000 for 2H04 (as it scales up to 100,000 active customers, due to the Planet Netcom acquisition).

Assuming that they can then increase the ARPU values to $30 per month, from the current $22 per month, then 2H-FY04 revenue should be $16.2M. This, however, would merely return DFT to its monthly ARPU values of ~$30 per month in 1H-FY03 (based on an average 30,000 customer base). More likely, the ARPU values will consolidate around the $22-25 mark, resulting in 2H-FY04 revenue of $13.5M at the $25 mark.

Of concern though were the following trends:
1) COMMUNICATIONS' EXPENSES
1H-FY03 = 41% OF REVENUE
1H-FY04 = 49% OF REVENUE
= DETERIORATION, AND HIGHER COMMS COSTS WHICH WILL FURTHER INCREASE UNDER TELSTRA'S NEW PRICING MODEL.

1) EMPLOYEE EXPENSES
1H-FY03 = 18% OF REVENUE
1H-FY04 = 25% OF REVENUE
= DETERIORATION, AND HIGHER AS THE BUSINESS CONTINUES TO GROW.

Likely 2nd half EBITDA on this basis will be ~$1.6M (up to $2.0M, at best), based on comms' expenses of 52%, employee expenses of 28% and other expenses of 8%.

There is still a long way to go before this business achieves proper scale, with pricing /resistance to pricing being one of the main business hurdles that DFT faces.