Thesis summary:

Current share price (24/02/2022): $0.10

Target share price range (FY25e): $0.27 – $0.35c

Upside: +170% to +250% (IRRs of 30 – 35%)

Investment case horizon: 3 years (end of FY25e)

Thesis outline:

Comms Group (CCG AX), an Australian-based IT Servicesnano-cap, certainly looks cheap at a share price of $0.10. On my FY23eforecasts (I use FY23 given this is the next full financial year), the currentshare price presents an opportunity to enter a potential “lollapalooza”investment case at an equity free cashflow yield of 15.5%, PE of 6.5x and EV /EBITDA of 5.2x for a business that I believe can grow EPS at >30% annuallyover the next three years, with a relatively asymmetric risk profile. My FY25eprice target range of $0.27 - $0.34c (+170% to +250% returns over a three-yearperiod, or 30% - 35% IRRs) is supported by assumptions combining:

1) Durable secular industry tailwinds within a largeand sustainably growing Total Addressable Market (“TAM”) which will driveannual organic revenue growth of >7% over the next four years. Comms Groupgenerates a high-quality revenue stream, which is >95% recurring with a36-month average contract duration and experiences less than <5% annualdollar churn, implying an average customer lifetime of ~20 years;

2) A definitively over-qualified & alignedmanagement team, who together own ~30% of the equity and have a superb trackrecord executing on the same 'buy-build-and-sell' strategy that Comms Group isnow embarking upon, which they’ve completed numerous times before at a much greaterscale;

3) Optionality to be acquired as a player within arapidly consolidating industry that is averaging two deals of >$20mtransaction values per month, and where comparable companies are being taken atheadline transaction EBITDA multiples of >10x;

4) Significant operating margin expansion. This isbeing driven by the high incremental gross margins inherent to any technologyre-selling business gaining scale and thus benefitting from increasing rebates bysuppliers. Combined with modest operating leverage, this underpins my forecastof +50bps annual EBITDA margin expansion over my investment period - from c14%to >16% by FY25e;

5) A valuation multiple re-rating opportunity due toa rapidly improving business quality (revenue, economics and returns). This isbeing driven by Comms Group using its enhanced scale to increase its revenuemix towards larger customers, which entails higher customer lifetime valuesthrough lower annual dollar churn, higher Annual Revenue Per User (“ARPU”) andlonger average contract terms; and

6) A significant margin of safety through thepresently clean balance sheet (ND / EBITDA of 0.9x), low starting valuation(~15% eFCF yield) and a high margin, recurring, and defensive revenue base whichcan be run-off to equal the current market cap.

Why is the stock mispriced, why invest now and is there a precedent?

I believe Comms Group is mispriced, and thus cheapto invest in on an absolute, relative, and precedent transaction multiple basisbecause:

1) It is a broken IPO, with the major strategic andoperational refinements achieved over the past two and a half years being overlookeddue to the company’s "tainted past";

2) It is under-the-radar, with a very small marketcap, no institutional ownership, and no relevant broker coverage;

3) The underlying attractive economics of thebusiness are being obscured following the completion of two transformational acquisitionsover the past year (Next Telecom and OnGroup) due to one-off transaction andintegration costs. These acquisitions have each added ~50% to thepre-acquisition revenue base, as well as de-risked customer revenueconcentration, enhanced scale and opened up attractive cross-selling opportunitieswhich I do not believe the market is fairly valuing; and

4) A massive, long-standing technical selling overhangof vendors who were issued scrip for their acquired businesses at IPO in 2017,which left them with ~60% of CCG equity post-IPO. This group has been sellingdown consistently since and have recently exited the share register.

Furthermore, this investment opportunity has becomeavailable just as Comms Group itself begins to meaningfully participate inindustry consolidation through the acquiring of ICT Services firms at 4-6xpost-synergy EBITDA multiples. This is attractive given the demonstrable cost andrevenue synergies, and multiple arbitrage benefit.

I think it is important to take an "outsideview" on this investment thesis by establishing a relevant precedent. Assuch, I think it is best to review the journey of fellow small-cap Australian ITService provider - Over the Wire (OTW AX). OTW floated in December 2015 at ashare price of $1.30 ($80m market cap), with a strategy identical to what CCGhas initiated on in the past year - a measured roll-up of local Australian ITservices businesses. For OTW investors, this has culminated in >370% upside(including dividends) over the past seven years since listing, which nowincludes the optionality to participate in further upside given this has beenrecently acquired by Aussie Broadband for a scrip bid valued at $5.70 (~12x NTMEBITDA).

Company description – what does Comms Group do?

Put simply, Comms Group is the middleman between~7,000 customers, who are technologically unsophisticated local Australiansmall and mid-sized enterprises (known henceforth as "SMEs") with 50 –1,000 employees, and >20 large international IT vendors (primarilyMicrosoft) whose >400 products Comms Group re-sells.

There are many names for this sort of businessmodel, such as Value-Added Reseller ("VAR), Managed Service Provider("MSP") or simply an IT Services provider. Which label is usedprimarily depends on what products the business largely focuses on re-selling,i.e., a "VAR" is typically used when the company is primarilyre-selling software whereas the "MSP" label is used when the companyis mainly re-selling Managed Services (such as digital Business ProcessOutsourcing).

Regardless of the semantics, Comms Group’s reason toexist is because these SMEs require a local presence to have its IT infrastructurephysically installed and maintained, with 24/7 available support, as they donot have the technological or economic resources to handle all of this in-house.The IT vendors (effectively CCG’s suppliers) want this as they do not have theinternal capability to provide high-touch installation and support services forthe millions of SME's that compose a large portion of their end-markets. Whilstthese SME’s do typically have an internal small team of generalist IT staff,they will outsource the more complicated ICT requirements to third parties suchas CCG.

Revenue breakdown:

Comms Group's sales mix is currently skewed towards"Voice" products (~60% of sales) which are primarily composed of allservices related to “Unified Communications as a Service” (UCaaS). For theun-initiated, the B2B communications world is undergoing a generationalreplacement cycle from on-premise handset phones (i.e. your Cisco / Avaya /Mitel desk phone) to UCaaS, which is essentially where work calls now can bereceived through any of your devices via the UCaaS software provider you areusing (think Microsoft Teams, RingCentral, 8x8 and Zoom).

Tobring this to life through an example, if you used the "Microsoft TeamsCalling" which CCG re-sells, and I called your work phone number, it wouldpop up on your mobile phone that you are receiving a call through MicrosoftTeams, but from my phone number, not dissimilar to what it looks like whensomeone internal within your organisation calls you through Teams (although in thatcase your colleagues name will pop up as opposed to a phone number).

The seculartailwinds driving this transition to UCaaS includes lower up-front capex (thereis no need any longer to spend money on >50 separate handsets at contract inception),flexibility through a remote connection and a seamless maintenance and upgradeexperience. A recent Jefferies report estimated the savings of switching to UCaaSas up to 70% off of the monthly bill vs. on-premise legacy B2B communicationsystems.

Importantly, the difference between receiving aninternal call from a colleague through a UCaaS solution, and from an externalcall, is that for the latter, the IT Service company (i.e. Comms Group) re-sellingthe product must have themselves established a Point of Presence (“PoP”) with alocal carrier to allow the call to be routed through successfully. To enablethis, CCG has manually established 16 PoP's covering 100 countries globally, withan over-indexation to APAC (with each relationship taking ~6 months of leadtimes each to establish). In fact, as of now, Comms Group is the only companyin the world to offer “Microsoft Teams Calling” in China, which managementconstantly re-iterates is a very strategic asset to a potential acquirer.

Whilst the bulk of Comms Group revenue comes from"Voice" products (around ~60% of total revenue), Data Services(mainly fibre re-selling) and Managed Services (mainly traditional digitalBusiness Process Outsourcing) comprise the remaining 22% and 20% of revenuerespectively. These latter two services are typically cross-sold into acustomer after a land-grab is established through “Voice” products, thusexpanding CCG’s share of wallet within a customer and making them stickier inthe process (reducing customer churn). Additionally, a more diversified productportfolio offered by Comms Group allows "one-stop shopping" for customers,which allows them to consolidate vendor relationships and streamline invoicing,a significant time and economic value-add.

Furthermore, CCG these products through two corego-to-market channels:

1) ‘SME, Corporate & Enterprise’ (80% of sales)

3) ‘Wholesale’ (20% of sales)

‘SME, Corporate & Enterprise’ consists of directproduct sales to SME’s (through either inbound or outbound leads) on contractterms of monthly payments with a 36-month average term. The size of customershere historically comprised of 50 - 500 employees, but as CCG has scaled, it’sincreased SG&A resources and positive customer reference book (almost allnew customers require >3 references from existing customers when choosing anIT service provider) has meant there is a mix-shift towards larger customers.This dynamic is positive, given these larger customers have higher lifetimevalues and thus will be key driver of CCG’s upwards inflecting businessquality. The average ARPU here currently is ~$5k AUD per month, but as CCGmoves to service more >1,000 employee customers, this will continue toincrease towards the >$10k mark.

The ‘Wholesale’ segment consists of signing partnershipswith large Multi-National Carriers where the carrier will re-sell Comms Group'sUCaaS product suite under their own name and pay CCG a commission on every sale(essentially white-labelling). An example of this was the contract signed withVodafone Fiji in late 2021. The average ARPU here is $10k AUD per month, with40 existing partnerships signed.

Industry analysis – A growing, fragmented industry that is consolidating rapidly, with CCG a likely future target:

In Australia, the SME-focused ICT provider landscapeconsists of >400 individual firms, with the vast majority of these beingsingle-city operators with <$20m in annual revenue. Structurally, it is anattractive niche due to high customer captivity and local competitive dynamics whichreduces the risk of international "800 pound" gorilla infringementgiven firstly, there is no significant disintermediation risk as the softwaresuppliers do not have the will or means to maintain millions of high-touchsupport contracts themselves, and secondly, large IT Service providers likeCapGemini and Atos focus entirely on the highly competitive multi-nationalcorporation and government customer portion of the market.

When thinking about the potential "TAM" ofthis market, I define this as Australian-based SME’s consisting of 100 – 2,500employees. CCG currently has 6,500 customers out of a total 54,200 implyingmarket share of ~12%, though dollar market share is likely smaller at ~8% givena current customer base skew to sub-500 employee clients. This market share hasgrown consistently from <3% (3,000 customers) since the 2017 IPO primarilydue to M&A.

Moreover, the market is consolidating rapidly due toa host of publicly listed competitors also following a ‘buy-and-build’strategy. The larger, publicly-listed players within the Australian market thatfocus on SME's and are pursuing this strategy include Macquarie Telecom (MAQAX), Spirit Telecom (ST1 AX), Vonex (VN8 AX), WebCentral (WCG AX) and Over TheWire (OTW AX) – which as mentioned has recently been acquired by AussieBroadband at ~12x NTM EBITDA.

As such, I think CCG will be approached within thenext three years as it continues its growth towards a meaningful size. All of thesementioned peers are currently running with comfortable leverage levels(<1.5x ND / EBITDA), with recent notable M&A activity including:

1) Vonex’s (VN8 AX) acquisition of Voiteck at 9.2x fully-loaded, pre-synergy NTM EBITDA

2) Spirit Telecom’s (ST1 AX) completion of13 acquisitions within the last three years

3) WebCentral (WCG AX) reverse acquisitionby 5G Networks (5GN AX) and subsequent bid on Cirrus Networks (CNW AX) at 10xTTM EBITDA

4) Rumours that Uniti Group (UWL AX) whichis the largest and most successful of these IT service providers roll-ups, isabout to get taken private by a pension fund at >18x TTM EBITDA.

A brief history of CCG – a completed turn-around:

Comms Group floated in 2017 under the leadership oftelco executive Ben Gilbert who used the proceeds to acquire and combine fiveseparate private IT service providers (Telegate, Oracle Telecom, Woffle,Telaustralia and Comms Group) with the objective of consolidating the markethimself.

Within 6 months, group organic growth had slowed,the businesses had not been integrated and Ben was forced to reset IPO guidance(partly as a result of over-paying for these initial businesses). This led to aseries of significantly dilutive equity issuances and a badly executed attemptto restructure the company’s cost-base, culminating in Ben Gilbert beingreplaced by Peter McGrath, previously a Non-Executive Director at the company, inmid-2019.

Peter immediately issued $2m in equity, bought halfthe shares himself and then proceeded to turn the company around throughinvesting heavily to rebuild its sales channel while downsizing non-core operations(i.e., a call centre in the Philippines) which resulted in annualisedcost-savings of $2m and stemming the revenue decline. Positively, that equityraising was the last completed by Comms Group which was not to support anacquisition.

Following these steps, the company has over the pastyear inflected from being on the "defensive" (reversing strategicmissteps and cementing integrations) to the "offensive"(opportunistic M&A combined with focused cross-selling across productsegments). Added to this is the clearing of the aforementioned significanttechnical overhang, and thus CCG represents a very compelling case of the“future not resembling the past”.

Management – astute, aligned, and over-qualified:

A key tenet of this investment case is howover-qualified the current management team is relative to the market cap ofCCG. Prior to Peter McGrath being appointed CEO of the business in mid-2019, hetook Nextgen Group from a $100m market cap in 2009 to a market cap of $1.1b withits sale to Vocus in 2016. Before that, Peter ran UeComm, where he swung aloss-making business to $30m EBITDA (vs. CCG at a $7m EBITDA run-rate) beforeselling it Singtel, netting shareholders at +300% TSR in the process.

Since becoming CEO in mid-2019, Peter has made theastute move of building out CCG’s re-selling capacity of Microsoft Teams, whichis the fastest growing UCaaS software. He has done so as Teams has grown itsuser base to 145m DAU’s in April 2021, +93% growth y/y, whilst increasing itsmarket share from 2.5% in 1Q19 to >10% in 1Q21 with share donation comingprimarily from RingCentral and Mitel.

Peter has economic exposure to roughly 5% of sharesoutstanding (half through direct ownership and half through a LTIP which vestsequally at a share price of $0.20 and $0.30, obviously far in excess of thecurrent $0.10) and his track record indicates conservatism in guidance, beatingboth FY19 and FY20 EBITDA guidance handily despite the disruption caused by Covid.Peter bought a further $100k AUD worth of shares on the open market in March2021.

I think Peter's unique experience of being a NEDfrom IPO and experiencing first-hand the deleterious impact of over-promisingand massively under-delivering will likely mean that all forward guidanceprovided will be overly cautious. This is evidenced by the fact that thecurrent FY23e guidance of a run-rate >$50m revenue and >$7m EBITDApro-forma for the OnGroup acquisition does not include the benefit of anyfuture M&A (extremely likely), beats on cost synergies (also likely judgingby historic experience) or any benefit from revenue synergies from the fouracquisitions made over the past year (again, also highly likely).

Overseeing all M&A is Ryan O'Hare, the seller ofNext Telecom who is now the largest shareholder with ~13% of the company (45mshares) and sits as a Non-Executive Director. Again, I believe Ryan ismassively overqualified given that in his previous life he built two separateTelco businesses from scratch to $150m in revenue before selling to strategic buyers;corpTEL which was sold to AAPT, and People Telecom which was sold to Vocus.

Economics – an excellent quality, sticky revenue stream combines with a capital-light, high-margin business model:

The revenue quality of Comms Group is very highgiven "mission critical" and "fulcrum" nature of theproducts. This is because CCG’s products sit in a sweet spot where they comprise5% - 10% of total customer operating expenditure but are absolutely essentialgiven that a SME cannot survive without a working communication system forextended periods given narrow cashflow cushions. Thus, it is no surprise that CCGconsistently collects cash on a 35 DSO average, with virtually zero bad debtors.

Contracts are signed on a 36-month average durationwith CPI escalators, although cash payment is charged and collected monthly. With>95% of CCG's revenue being classed as "recurring" (the remaining 5%being one-off implementation / consultation fees), and a dollar churn rate of<5%, this implies an average customer lifetime of 20 years. Of that <5%annual dollar churn, the bulk of it is composed of either customer bankruptcyor the exit of duplicated communications systems when a customer merges withanother not using CCG.

There is no sector-based revenue concentration, withspecific customer revenue concentration continuing to fall, seen by the twolargest customers currently composing 8% and 7% of total revenue respectively,down from 24% and 17% at IPO. Recognisable logos that CCG has won recentlyinclude Wolters Kluwer, St. James Place (a large UK-based wealth manager) andToll Holdings. It is also worth noting that ~30% of this revenue is “semi-recurring”in the sense that it is linked to some sort of variable such as calls or ICTusage per user / seat, although these tend to not fluctuate significantly.

As a "capital-light" IT service re-seller,terminal gross margins range between 40% - 60% depending on:

1) Which services / products occupy themajority of the revenue mix; and

2) Scale, given being larger means higherrebates from key suppliers, and thus lower COGS per product.

EBITDA margins thus are dependent on the above, plusobviously operational efficiency, with EBITDA margins in the publicly listed AustralianIT Services space tending to range between 15% to 25%.

Comms Group is currently run-rating gross margins of45% as adjusted for one-off acquisition expenses, which has been bolsteredrecently by achieving "Gold Partner" status from Microsoft on itsTeams product. Underlying EBITDA margins are running at 14% pro-forma for the recentacquisition of OnGroup which primarily re-sells lower margin Managed Services,although this doesn’t yet obviously include the future benefit of driving thecross-sale of CCG's voice portfolio to its 500 customers yet.

Given group opex is ~70% fixed (labour expenses),incremental EBITDA margins are trending towards >16% when factoring in the cost-synergiesthat are continuing to come through from the four acquisitions made over thepast year. As Comms Group grows, it intends to keep prices flat, thus allowing grossmargins to expand due to COGS per unit falling as supplier rebates increase whilstremaining competitive on price. Additionally, given the large proportion of labourexpenses, it is positive that Comms Group flagged in its 1H22e earnings callthat they were not seeing wage escalation in the context of this current inflationaryenvironment.

Cash conversion will remain very high, given as a "capital-light"re-seller given there is minimal capex required to grow with no major NWC drag.Roughly ~2% of revenue will be spent annually on its IT systems to accommodatea growing customer base, which is slightly offset by receiving better paymentterms from key suppliers. I am assuming this drag will remain minimal, and thatuFCF / NOPAT cash conversion remains at >95% over the next three years as aresult.

Revenue growth – a long runway of organic and inorganic growth:

Comms Group has positioned itself optimally withinthe IT Services value chain by specialising it’s product suite primarilytowards one of the highest growth verticals in “Voice”, with the UCaaS marketforecasted to grow at >10% p.a. out to FY25e according to Gartner. Although,going forward within "Voice", there will be a minimal degree ofself-cannibalization given roughly ~15% of total existing group recurringrevenue is linked to the maintenance of cloud-enabled handset phones (think aCisco phone that is connected to the internet), which is now being replaced bymobile-first UCaaS. I anticipate on a blended basis CCG can grow organicallyhere at 7 - 8%, which is below both the 10% guidance which management statedwas achievable on its 1H22e earnings call, as well as obviously the cited industrygrowth number of >10%.

When factoring in exposure to lower growth verticalssuch as “Data” and “Managed Services”, to grow at a blended basis of >7%organic revenue growth at the group level would effectively require ~300 netnew SME customers per year (on a current base of 6,500) combined with an ARPUincrease of +4% which seems conservative in the context of CCG’s increasingrevenue mix towards larger customers.

Whilst organic revenue growth has been sluggish overFY20 and FY21 due to a combination of both Covid prohibiting office access toinstall new products for both existing and prospective customers and theexiting of unprofitable contracts entered by the previous management, the recentformal end of lockdowns in Australia combined with a re-invigorated go-to-marketstrategy underpins my forecast of organic revenue growth growing 6 - 7%annually out to FY25e.

Additionally, given the currently low penetration ofUCaaS products across the relevant TAM of 10% to 20%, and thus large degree of"blue ocean" space, there haven’t been any reports within theindustry regarding "pricing wars" or competitors undercutting to gainmarket share, and as a result pricing discipline has remained strong within themarket.

Coming now to growth potential on an inorganic basis,there are >400 IT service providers in Australia (>95% of those beingprivate) which operate in single-city locations and can be purchased on 4x - 6xpost-synergy EBITDA multiples. An obvious risk here is that either financialbuyers, or other listed strategics pursuing a similar strategy, such as SpiritTelecom (ST1 AX) and Vonex (VN8 AX) drive up acquisition multiples by beingspendthrift, although there has been no indication. CCG has remaineddisciplined on price and has even walked away from an acquisition available at5.5x post-synergy EBITDA given the management team thought that this was overlyexpensive for the quality of the target’s underlying SME customer base.

Underpinning my belief that CCG will continue toacquire sensibly is that Peter McGrath (CEO) and Ryan O’Hare (NED) have alreadysuccessfully overseen four acquisitions; Next Telecom (Jan 2021), BinaryNetworks (April 2021), Switched On (August 2021) and OnGroup (February 2022).Common to all these deals is:

1) Delivered cost synergies ranging from10% - 40% of stand-alone pre-acquisition EBITDA, which are easily extractablegiven these are delivered through driving procurement rebates, reducingduplicated headcount and centralising hosting costs.

2) Funding for these deals composed ofroughly 80% cash and 20% CCG equity. This equity component is aimed atretaining the founders of these business, who are motivated to join a largerorganisation like CCG as they get to remain fully responsible for sales (whichis usually their key competency) whilst off-loading back-office responsibilitiesto CCG.

3) When making the acquisitions, CCG didnot forecast the benefit of any revenue synergies through cross-selling despitethese clearly being a key factor behind the deals (I once again re-iteratePeter’s track record of conservatism)

4) Purchased at 3.5x -6x EBITDA PF for synergies, assuming a minimal component of the contingentearn-out has been hit, which has been the case with the first threeacquisitions.

My forecasts for the business, and how I’ve arrived at them:

Comms Group has provided guidance at the 1H22 resultin February 2022 of a FY23e run rate of >$50m revenue and >$7m EBITDA (itis a June year-end). I believe this guidance is conservative given it implies:

1) 0% organic growth on an underlying basis for FY23e despite the positive dynamics that have been discussed

2) Zero additional cost or revenuesynergies coming from the recently acquired businesses

Over the length of my stated investment case (thenext three years), my organic revenue growth forecast for CCG comprises of are-acceleration to >7% annually out to FY25e, driven by an annual +3% growthin its customer base combined with +4% growth in ARPU.

Additionally, the company has recently secured a$10m debt facility from Commonwealth Bank, $8m of which was recently used onthe OnGroup acquisition. I believe that management is comfortable withmaintaining up to 2x ND / EBITDA, and thus assuming a continuation of acquiringbusinesses at a 5x post-synergy EBITDA multiple would imply that the generationof $25m in incremental equity free cash flow and raising of $30m in incrementalnet debt will generate $120m in revenue and $20m in EBITDA by FY25e (a 16.5%EBITDA margin) when factoring in my underlying organic growth forecast. Thiscomports to a FY25e ROIC of 21%, up from 15% today, generated almost entirelyby gross margin accretion and operating leverage in excess of the incrementalcapital deployed into the business.

To summarise - the two key revenue driver's thatwill make this thesis work are that:

1) CCG’s organic revenue growth re-acceleratingto >7%; and

2) CCG continuing to successfully acquireand integrate at a post-synergy multiple of 4x - 6x EBITDA.

Valuation – current and “fair” valuation ranges:

Taking management’s recent FY23e run-rate guidanceof >$50m revenue and >$7m EBITDA, the current share price values CCG atan EV / EBITDA of 6.5x and PE of ~7x, pro-forma for $6m in year-end FY22e netdebt, and new shares issued as a result of the OnGroup acquisition, equating toan entry eFCF yield of 15%.

Adjusted for my organic revenue growth forecast andassumption of further M&A, my FY23e sales and EBITDA estimate is $70m and$10m respectively, implying an even cheaper entry multiple of 5.2x EV / EBITDA andPE of 6.5x (with the EV again pro-forma adjusted for the expected debt andequity raised to fund acquisitions).

In terms of fair valuation for this business, Iwould note that Altigen Communications (ATGN NA), an identical US-basedbusiness operating in a more competitive market which generates a lowerpercentage of recurring revenue and runs at EBITDA break-even levels traded upto 4x EV / LTM recurring sales, which in the case of CCG would comport to anFY23e EV of >$200m (vs. $45m today).

I think it is more prudent to look towardsAustralian-based peers such as Over The Wire and Spirit Telecom, which have tradedin ranges of 8 - 12x. I do not believe Vonex and WebCentral, trading at ~5-7x forwardEBITDA, are appropriate comps given their lower recurring revenue, lowerorganic growth outlook and higher micro-SME exposure. Thus, I believe a “fairEBITDA multiple” for CCG once it is generating my FY25e forecast of ~$100m insales and ~$20m in EBITDA is 8x. Applying this and adjusting the incrementaldebt and ~60m new shares raised for M&A over the next three years, comportsto a fair value of 24c, or +170% upside in three years.

In a transaction scenario, as mentioned, recentrelevant deals include Over The Wire being acquired for 12x pre-synergy EBITDAby Aussie Broadband and Empired (EP1 AX) being acquired by CapGemini for 10xpre-synergy EBITDA. I would think management of CCG would not accept less thana 10x EBITDA exit multiple here, and thus inputting that gets you to a “fair”share price of 36c, or >250% upside over the investment case period.

Summary:

To summarise – this investment case is about backingan extremely capable management team, which has executed this exact strategysuccessfully elsewhere before numerous times, in a growing sector with anattractive business model at a very low starting valuation. The current shareprice provides the opportunity to pay a FY23e PE multiple of 6.5 - 7x for abusiness based on my analysis can grow EPS at >30% p.a. over the next three yearsprovided the execution is there.

Risks:

1. Overpaying / botching acquisitions. This is in myview mitigated by the CEO's success purchasing and integrating three business withCCG already (Next Telecom, Binary Networks and Switched On), whilst integratingand turning the boat around on the shipwreck which was the job left by theformer CEO on the initial five companies which were purchased at IPO.

2. Private market acquisition multiple inflationstemming from Spirit Telecom (ST1 AX), Vonex (VN8 AX) and other strategicacquirers bidding these up, although thus far industry post-synergy multipleshave remained around the 4 – 6x EBITDA range.

Catalysts

1. Organic growth re-acceleration to >7%

2. Continued well-executed, accretive acquisitions

3. Acquisition by a larger strategic player