Dhukka, I think it is very likely we could see NPAT margins over...

Dhukka, I think it is very likely we could see NPAT margins over 20% in FY12.

On my model I have EBITDA of approx 10.5 mill in FY12 and NPAT of around 4.7 mill giving an EPS of 3.2 cents per share and equating to a NPAT margin of approx 21%.

This is based on a decreasing COS margin than the half year which was a lot higher than the PCP. I would think the COS margin will decrease but perhaps stay higher than FY10 as the community internet is likely to be a lower margin business (in a relative sense).

I take your point about higher depreciation costs. I am working on D&A of around 3.75 million in FY12 which is substantially up on the FY10 D&A of approx 1 million. Obviously the higher D&A is brought about due to ongoing CAPEX spend and all the recent plant and equipment and customer contracts aquired in recent acquisitions. Even with that higher charge I still get EPS of 3.2. Dont forget that a very material proportion of the CVA acquisition consists of goodwill. Of course goodwill is subject to an impairtment test however if there is no impairment there will not be any D or A charge against goodwill, so that keeps a lid on future D & A.

In terms of my EBITDA estimate of 10.5 mill I think that would appear achievable given the recent announcement. With a current EBITDA run rate of 7.5 million now adding in say 15% growth giving 8.6 mill (which I think is achievable given industry growth rates, capacity to cross sell against expanded client base and general organic growth) and then adding on 1.6 million in cost savings and then adding back non recurring 560k in acquisition expenses.

I think EPS anywhere in the range of between 2.9 to 3.2 is possible.

The question is will the market rerate BGL on its FY12 numbers and what multipe will the market yeild. It is still a small company and therefore unfortunately escapes the attention of a large part of the investment community. I still think the lingering uncertainty surrounding the NBN also is having an impact on BGL. On top of that I still think there is a reasonable overhang of CVA sellers that will continue to take profits over the next little while.

That aside if you look back at FY 10, on release of the Feb results the market bid the share price up to around a multiple of 10 times its earnings for the FY10 year. Unfortunately it has largely stayed around those prices since. On that basis it would seem to be that when the market is more confident of earnings it will rerate the share price.

My DCF yeilds a val of 32 cents per share, and BGL still trades at a very significant discount on a PER and EV/EBITDA valuation to its peers on a forward earnings basis (FY12), which I think will correct as we lead up to the release of the half year results in FY12 - save any major correction the markets. It would be dissapointing if the share price was anywhere below .25 by February next year (assuming my earnings estimates are correct). My target price is around 28 to 30 cents per share.

Another possible basis for a rerate of course is the introduction of a maiden dividend which would seem increasingly likely for FY12. Also something to think about is the capacity of BGL management to sell the BGL story. To date I think they have done an exceptional job in keeping the market informed of the story and also getting the wider story out via the press etc. I have spoken to people in the industry and they had a lot of respect for the media coverage that BGL management was able to generate for lets face it - a microcap company.

Eitherway congrats to Jason and the team. They are continuing to build scale and momentum and if they continue the way they have then its only a matter of time the market provides the valuation BGL deserves.

Of course all my opinion so DYOR.