Hi Yanlin,I have been in Sydney all day and only got back to...

Hi Yanlin,

I have been in Sydney all day and only got back to Melbourne late evening. Interesting, however, to see the debate continuing in my absence.

Nothing, however, has been said in the debate that detracts from any of what I argued last night.

Extreme dilution of the existing shareholder base is likely such that control of ATC will pass from the current ATC shareholders to a combination of the FNT /"financed" shareholders.

It is also quite likely that FNT revenue will be required to firm up the cash flow position of ATC, to enable ATC to pay for the FNT acquisition out of cashflow (ie: FNT revenue being used to pay the FNT vendors for the ATC acquisition). Great way of going about things, if one can do so!!!

That said, I am still quite confused by all that has been said by ATC in recent days.

Firstly, as to "my eye for detail", the enlarged operations of ATC will generate $230m in CY03 (assuming a 31/12/02 completion), not the $280m that you mentioned.

Of this amount, most will come from FNT, and some from ATC.

But, how much?

According to the 28/10 ASX release, ATC generated US$1.0m in 24 days (to 24/10), including US$52K on 24/10.

This was used to support the following comment, extracted from the Release:

"Mark Stewart, Chief Executive Officer, AdvanTel said, "AdvanTel's revenue growth this quarter is proving very strong. There are 92 days in this quarter so this is an excellent achievement. We are going to have another quarter of significant growth and our business plan remains on track.'"

Quite likely so, except that October finished at US$1.2m (refer ASX release of 6/11).

Based on what ATC reported on 28/10, the final 7 days of October should have realised a further US$364K (@US$52K/pd). In fact, a further US$200K @US28.5K per day was US$38,700.

So, compared to the US$41,667 daily average reported to 24/10, and a US52,000 result reported for 24/10, October ended at an average of US$38,700, including a final week average of US$28,500 (well down on the impressions being conveyed in the ASX release of 28/10).

This either suggests that ATC was over-selling the virtues of one-off milestones (ie" talking the market up), or, given the number of revenue misses to date, ATC still lacks firm /effective control over its forecasting model (afterall, we are all human, here).

Assuming, however, that the eventual truth will radiate towards the US$52,000 mark, this should result in average monthly revenues of US1.58m (rounded to US$1.6m) going forward.

At an FX rate of 56c, this should translate to:
1)
monthly revenue of AU$2.86m; and
2)
annualised revenue of ~AU34.32m (rounded to $35m) in CY03.

And, this is after ATC takes account of the 10-fold increase in China in-bound tariff rates (ie: ATC's ASX release of 6/11 comments quite specifically on the improved revenue, margin, and value proposition represented by the tariff increase, whilst the 7/11 release comments on the enlarged ATC having annualised revenues of $230m in 2003, based on a 31/12/02 completion).

In other words, if seeing is believing, then:
1)
FNT's revenue in 2003 should be $175m + ?????; and
2)
ATC's revenue should be $34m + ????.

The $34m is based, however, on the results of 24/10, extrapolated forward. It, therefore, does not really take into account:
1)
additional carrier traffic /connections;
2)
the USA contributions; and
3)
the China inter-connection tariff hike (your 10-fold increase).

So, if ATC is going to contribute at least $34m to the new enlarged pie, then FNT's relative contribution will be circa $196m (maximum), or less.

Based on incremental growth of 10%, FNT's $175m FY02 results should improve to $192.5m+.

In other words, in 2003, FNT's growth rate, based on ATC's ASX release of 7/11 will be below its historic long-term trend.

Alternatively, ATC's self-generating revenue will plateau out, whilst leaving room for >10% growth in FNT revenue.

As I doubt that ATC's revenue will plateau out (at least based on all of the optimistic arguments of ATC, and contributors such as Yanlin), it must then be that FNT's revenue profile will plateau out in 2003.

Simply put, FNT may represent something of value to ATC. But, either the revenue profile of FNT will slow, plateau or move into decline, or the revenue forecasts of ATC will be under-achieved. As such, the relative value of FNT to ATC is simply this - access to FNT's cashflow, whilst feeding ATC's continuing net cash needs.

This, therefore, appears to be the reason behind:
1)
the FNT deal being announced in July (at an advanced stage of completion), only to be re-negotiated twice since then, with an eventual 4-6m delay in finalisation;
2)
a reduction in the effective acquisition price;
3)
the dilutionary impact of the proposed settlement terms; and
4)
the lack of detail (ie: the revenue side of the equation keeps on being mentioned, but never the cost side of the equation).

In closing off on this debate Yanlin, I note also your comments that you are:

"not blinded by "hope", I am following the logic and the well-defined path that the board and management have laid out as their vision from day one. It seems there are too many critics that have been burned by other dog stocks, so feel the need to poo-poo this stock. All I can say is, do so at your own peril!!!"

All I can say to this Yanlin, is take a look at my postings over time on ATC, and many other stocks. Then, you will see how I argue my positions, assemble the facts, and assess the merits of any arguments.

But back to ATC.

Way back when, before the sun had even set, I posted the following on ATC, dated from 1st July. I have included my posting in its entirety to ensure that there is no confusion of the matters discussed (particularly my arguments regarding pre-paid).

As I have said before Yanlin, and will say again, I am not opposed to ATC. But there is more detail lacking from what ATC has said to date than what they have disclosed. I do not, therefore, like selective disclosure which does not present a balanced scorecard. This is where ATC is suffering. Thisiswhere the ATC shareholders have been at risk to date. This is why ATC's credibility in the marketplace still needs to be earnt.

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Subject ATC - re: Comes out of trading halt tuesday. ( 1 reads - 0 replies )
Posted 01/07/02 21:45
Member Grant62
------------------------------------------------------Hi Peter,

If there is a merger with either Wavecrest, or with Interoute, then expect ATC to be taken out of the equation (ie: business acquired, ceasing to be listed).

If, however, a strategic (or cornerstone shareholding) is taken in ATC, then expect for ATC to gather strength and function as the listed Asian connection for Interoute or Wavecrest.

If the announcement concerns pre-paid, expect the market to re-act lukewarm.

If China Mobile /CDMA linked, expect a positive reaction.

If June revenues linked, expect a continuation of previous pricing strength.

If (1), expect an upwards spike. If (2), expect a sustained spike. If (3), expect a lukewarm reaction. If (4), or (5), the price will go up for a while. If anything else, expect sideways movement or a short-term dip.

My primary concern with this type of re-selling activity is that previously TLO sought to do this with NTMi. I do believe, however, that the ATC model is different. Hence, more viable. For starters:
1)
switching equipment located in Asia, not in Sydney;
2)
trapping outbound traffic from Asia (higher margin), not inbound (lower margin); and
3)
strong customer reach /carrier presence through Hong Kong.
Best Regards,
Grant62