egoli report

that's the egoli report www.egoli.com.au
actually nothing new, but all together in one article.
this could be quite big.
go skg

High technology company SkyNetGlobal Limited (SKG) is moving to cement its position as the leading supplier of ‘WiFi’ Local Area Network services in Australia with the acquisition of Star-Tech Limited. This week, Egoli gave the acquisition and its accompanying $5 million capital raising the quick once over.

THE TECHNOLOGY:

If there seemed to be a lot of jargon in that opening paragraph you’re right. When we say ‘WiFi’ we do not mean a corruption of ‘wife’ in some obscure Mediterranean language, but rather the wireless technology standard which provides computers with high speed ‘broadband’ internet access.

WiFi-enabled computers send and receive data indoors and out, anywhere within the range of a WiFi base station. With maximum transmission speeds of 11mbps, this is almost 200 times faster than a standard dial-up modem and more than 1,000 times faster than GSM mobile phones.

How widespread are these base stations or ‘Hotspots’? SkyNetGlobal currently provides its customers access to more than 1,000 Hotspots worldwide and 163 in Australia – more than any other company. These locations include airport lounges, hotels and cafes although the group is steadily expanding its range.

If there is not a Hotspot within range, then customers can still dial-up from 20,000 locations across 150 countries using its ‘Connector’ software. This software automatically updates SkyNetGlobal customers every time a new Hotspot is added, allowing them to find the nearest and connect anywhere in the world, using the same username and password.

THE MARKET:

Obviously, the other key driver of Hotspot usage is the number of notebook computers being shipped with WiFi capabilities installed. Industry experts Frost & Sullivan predict that by 2005, virtually all notebooks sold in Australia will have the latest Centrino chip, which has WiFi capabilities built in.

On this basis, Frost & Sullivan have predicted the number of public Wireless Hotspot users in Australia will grow from 24,000 in 2003 to over 2.0 million by 2008. More importantly, they estimate that spending on Hotspot services and Wireless LAN will grow from $9 million in 2003 to $273 million in 2008 - i.e. a compound annual growth of 94.8%.


SkyNetGlobal is also rapidly expanding into the provision of residential WiFi broadband services. Between June and October 2003, the company’s subsidiary W Home secured agreements to install 14 apartment buildings in Sydney with this technology.

Unlike many other high speed networking companies, W Home is able to minimise installation costs because it uses the existing electrical wiring of the building to deliver its broadband service. Moreover, it only installs its network after securing a minimum subscription level to cover its one-off set-up cost of around $10,000 per building.

Importantly, the W Home service is based on proven, existing technology standards such as ‘Home Plug’ and ‘X10’ – the latter of which is installed in over 10 million homes in the US. SkyNetGlobal is currently in the process of lodging patents in Australia and various overseas jurisdictions for its technology. Once granted, the company plans to licence the technology to telecommunications carriers globally and pursue further sales in Australia.

W Home’s broadband consumer packages start from just $29.95 per month which includes unlimited downloads. Even better, this system does not require any sort of telephone line, saving you the standard monthly line rental of around $25 per month for each extra line.

So far, the buildings equipped for W Home WiFi broadband access are: AEA Grand, Balmain Shores, Bayview Waters, Clifton Apartments, Hordern Towers, Harbour View Towers, King Street Wharf Shelley Street Nos 23, 35 & 45-49, Maetri Towers, The Mirage, The Peak Apartments, Phoenix Apartments, Victor Towers.

THE ACQUISITIONS…

Smart Connect

On 19 August 2003, SkyNetGlobal announced that it had agreed to acquire Smart Connect Pty Ltd for a total of $2.1 million with $1.0 million payable upon closure. Smart Connect has exclusive retail distribution rights for the X10 range of home automation products in Australia and supplies customers such as Dick Smith, Tandy, Powerhouse, Harvey Norman, Domayne and Retrovision.

This allows homeowners to use existing electrical wires to communicate between multiple devices such as lights, appliances and computers in their house, office or flat. For example, you could network all the rooms in your house to share a printer or play network games without requiring any new wiring.

"There is great synergies between both W Home and the Smart Connect businesses," claimed chairman of Smart Connect Russell Scott. "The acquisition includes strengthens the opportunities available to distribute X10, which will be greatly enhanced by Smart Connect’s existing consumer base coupled with W Home’s recognised brand."

Under the deal, a further $1.1 million is to be paid in August 2004, subject to the business achieving FY04 EBIT forecasts of $670,000.

Star-Tech

SkyNetGlobal has also agreed to acquire wireless LAN (Local Area Network) company Star-Tech for $400,000 with a further $1.1 million paid in shares subject to the latter achieving 2004 EBIT of $500,000. According to SkyNetGlobal, Star-Tech is one of Australia’s leading and most experienced wireless network solutions providers and has designed and installed some of the country’s largest wireless networks. However, SkyNetGlobal will only complete the second deal if it raises $5 million under the current capital raising, although it has the discretion to still make the deal if it raises somewhere between the $2 million minimum and $5 million.

FORECASTS:

According to the prospectus, SkyNetGlobal is expecting to more than double its revenues in the 2003/04 financial year to $9.6 million and increase its net profit by more than 12 times to $1.0 million.

Although the prospectus forecasts sound high, it should be noted that the company has already demonstrated a significant turnaround in recent years. In the 2001/02 financial year, the company earned revenues of $510,000 and posted a $6.8 million loss but lifted revenues to $4.4 million in the 2002/03 financial year and turned the loss into a small profit of $79,000.

Importantly, all of these forecasts have been made assuming the minimum and underwritten $2 million is raised under the prospectus and does not include the Star-Tech acquisition.

THE OFFER DETAILS:

Opening date for receipt of applications: 13 October 2003

Closing date for receipt of applications: 21 November 2003

Expected listing on ASX: 28 November 2003