NB: To ensure your email is setup to view embedded images please follow the instructions at the bottom of email.
Valuation: $0.24/sh
Reason For Update: FY09 results
What we know:
AMM reported NPAT of $12.1m for FY09, slightly ahead of guidance of $11.5m. Underlying NPAT (excluding equity accounted earnings in IIN and one off costs associated with the Elders sell down) was $7.9m, up from $5.7m in the prior year and consistent with recent guidance. Operating cash flow of $20m was consistent with the prior year. AMM declared a final fully franked dividend of 0.5 cents per share bringing the full year dividend to 0.8 cents, up from 0.7 cents for the prior year. The annual recurring revenue base increased from $43.2m to $50.8m in FY09 driven by continued strong demand for fibre based products. AMM expects double digit earnings growth to continue in FY10.
What we think:
Underlying NPAT of $7.9m was in line with our expectations and a good result in our view demonstrating the resilience of AMM’s business despite a weakened economic environment. The strong 17% growth in the annual recurring revenue base for FY09 was pleasing, particularly given it was during a year where some customers were downsizing. The balance sheet remains strong with a net debt to equity ratio of only 12%. Given the 272m listed options (exercise price 17 cents) are in the money we are now assuming they will be exercised, resulting in a $46m cash injection during FY10. As a consequence of the associated interest revenue our forecast underlying NPAT for FY10 has increased to $9.3m, from $8.8m. We continue to forecast net new fibre sales (after cancellations) of $600k per month, consistent with the average during FY09.
Investment Case:
AMM is trading on a fully diluted normalised PER of 8.4x FY10 and an EV/EBIT of 4.3x FY10, cheap multiples in our view given its strong growth profile and defensive nature of its earnings stream. Our SOP valuation (fully diluted) has increased to 24 cents per share, from 21 cents per share, due to a combination of the recent increase in the value of the IIN investment and an upward revision of the EV/EBIT multiple we value AMM, from 6x to 7x.
*The above assumes the stock is fully diluted (there are 272m options in the money – exercisable at 17 cents per share by 31 December 2009).
Our SOP valuation is based on 7x forecast EBIT for FY10, consistent with the current trading multiple for IIN which has a similar growth profile to AMM. We provide below a comparison of AMM and IIN’s EV/EBIT multiples and forecast EBIT growth.
AMM is trading at a discount to IIN’s EV/EBIT multiple, unjustified in our view given they both have a similar organic growth profile over the next 2 years. AMM is trading at a 20% discount to our SOP valuation and we maintain our Buy recommendation.
Euroz Securities declares that it has acted as underwriter to and/or arranged an equity issue in and/or provided corporate advice to Amcom Telecommunications Ltd during the last year. Euroz has received a fee for these services.
AMM Price at posting:
14.3¢ Sentiment: Hold Disclosure: Held
