We revisited two junior telcos last week, Swiftel (SWT) and Amcom Telecommunications (AMM). The stories are fairly similar, illustrated by the share price movements of both companies over the past two years. Now both companies have reached an EBITDA positive situation, which one offers better leverage?
SWT indicates it expects FY2003 EBIT of $1.3m rising to $3.75m in FY2004. Adjusting to derive a NPAT estimate, we believe SWT now trades on 7 times FY2003 prospective earnings. AMM has indicated it will book a $3m loss for FY2002, with our estimates suggesting the company will do well to breakeven in FY2003, making a profit in FY2004. The upside potential for AMM is its 26% interest in IP1, which we believe could reap a significant windfall inside three years.
With SWT’s enterprise value at $7.6m and AMM’s at $28.4m, it would appear that SWT offers the greatest leverage, especially considering its stronger financial position. We are of this view and recommend SWT as a SPEC BUY. We are in the process of analysing AMM in more detail and will offer a recommendation in due course. At this stage we believe investors should HOLD.
