Ann: Appendix 4C - quarterly, page-44

Having had a bit of a look at the 5GN 4c, I'd say this firm has been significantly oversold. Nothing in the report surprises me particularly to the downside. While it might have been a bit overpriced at 160+, now its price is not justified by the financials or business model in my view.

I am new to 5GN, but bought in because I can see opportunity here which I thought I would share. Looking at the cash reports, qtrly cash operations profit should climb by about 1.2m next qtr. You can check this yourself by comparing the current qtr production, salaries and admin lines against the projected numbers for next qtr and the savings are about 1.2m. This assumes no new sales, which is probably unlikely given the Melbourne CBD fibre network now passes over 500 buildings. Also note that the only reason the cash was negative for the qtr was that they prepaid suppliers for the next qtr.

The 120k in employee entitlements paid to departing staff is normal after a merger as one of your cost reductions is to consolidate admin that is otherwise duplicated - which means staff go, and usually longer term staff as admin turnovers are often lower than operations units. They are usually let go on attractive packages often negotiated as pert of the merger.

Integration of operations in this kind of network hosting business is desirable but not essential as each client group can be treated as an island. Migration of the backbone is important ultimately for cost savings but can be done over time - no need to rush it. The first big savings come simply from removing duplication at the admin level, then at the corporate leasing space level, then later at the operations.

When an ASX listed firm valued at, say, 20x earnings acquires a private firm valued at say 5x earnings there is an immediate jump in the valuation of the acquired component as that component now becomes valued at 20x earnings. When I looked at this firm a few months ago, I thought perhaps they had paid a bit much for the purchased entity (13x was it?), but there is still plenty of margin for the acquisition increase, and cost savings in merging and consolidation.

I'd say with 1/3 knocked off the price 5GN is probably a bargain right now.

(Bought in today therefore)