ST1 has said that acquisitions would form an integral part of the company’s strategy.
The first acquisition was always going to be smaller than the acquisitions that may follow.
One of the smart telephone numbers that Phone Names owns is 1300 DOMINOS, which is then leased out to Domino’s Pizza. Other major customers include Harvey Norman, Bendigo Bank and Vodafone.
There is no CAPEX associated with this business and the ability to increase asset utilisation at no incremental cost provides operating leverage. Given just 20% of the 2200 smart numbers are currently being leased out there is plenty of opportunity to drive utilisation (and thus earnings) higher.
Spirit’s management team have extensive experience in running businesses like Phone Names.
This acquisition should be a quick and easy bolt on for Spirit, and it wouldn’t be surprising to see them make another acquisition in the next few months given the pipeline of opportunities.
The cornerstone investor for the $2.25m placement is the boutique fund manager MHOR Asset Management, founded by James Spenceley, who founded and built Vocus Communications.
James is without doubt one of the most highly respected figures in the telco industry. For a small and growing telco like Spirit there is no bigger endorsement than to have someone of his stature back the company financially.
Spirit management now have access to someone with extensive experience in building and running a listed telco from a micro cap to a multi-billion dollar company.
On a pro-forma basis the Phone Names acquisition will add $0.8m of EBITDA. That's a 44% increase to FY17 based on previous broker forecasts.
The Spirit growth story is only just getting started.
Capital H Research has also increased it's investment in Spirit Telecom, based on management indicating that the acquisition pipeline remains exciting, and with James Spenceley and MHOR on board.
This promises to be an exciting few years for Spirit, hopefully growing into another Vocus like communications company.
The future is looking very bright for this junior telco.
Gw
ST1 Price at posting:
3.6¢ Sentiment: Buy Disclosure: Held
