iiNet (IIN) is the second largest Internet Service Provider (ISP) in Australia.

IIN has built its own network (the iiNetwork), boasts the largest Voice over IP network in the country, abolished monthly phone line rental with Naked DSL and has released wireless modem-and-phone-in-one BoB to the world.

The firm was included in the ASX 200 in 1999 and employs about 2,000 people at present.

The group’s strategy to increase its value is to grow organically and inorganically. IIN recently acquired TransACT in 2011 and Internode in 2012. These acquisitions are expected to deliver considerable synergies to the firm in the coming years.

Recent Results

In its 1H13 report, the firm’s NPAT increased to $31.9 million, 122% higher compared to the prior corresponding period.

Aside from the aforementioned, one of the main highlights of the recent report is the significant 73% increase in the firm’s EBITDA compared to the 1H12. This translates to a 35% improvement in the firm’s EBITDA margin from the prior corresponding period. The solid results were primarily due to the strong organic growth and synergies realized from its acquisitions.

Below are charts of the firm’s reported EBITDA and reported NPAT performance in its 1H13 results. One can easily see the vast improvement from the 1H13 results compared to the 1H12.

Peer Comparison

Despite the recent rally IIN’ share price, the company stacks up rather well when compared to its peers.

IIN is trading on a forward P/E of 16.8x.

This compare to peers Amcom (AMM) and TPG Telcom (TPM) which are trading 22.1x and 19.6x next year’s earnings.

IIN’s forecast dividend yield is around 3.8% more or less in line with AMM’s and higher than the 2.5% forecast for TPM.

Outlook

As previously mentioned, the firm’s recent acquisitions are expected to deliver synergies to the firm.

More importantly, both TransACT and Internode has a solid customer base, which will translate to higher potential earnings growth in the coming financial years.

Some of the benefits from the acquisitions have already manifested in the firm’s recent 1H13 results. We expect the firm to realize the full benefits from the aforementioned in the medium to long term.

Moreover, the firm has been successful with increasing its market share on the back of competitive rates, attractive combination of services, and its acquisitions.

Iinet was listed in the traders report as a buy share for our members on May 13th. For all of our latest share tips and trading ideas sign up for FREE 7 Day Trial and gain full access our research files.

Amcom Telecommunications Limited (AMM) is a fiber-based telecommunication service provider. AMM has three key business segments; Fibre, Business Services and Amnet.

The Fibre division provides a comprehensive range of high speed products to blue chip corporate clients, government agencies and other telecommunication providers through its own extensive fibre network in all main capital cities across Australia.

Business services offers voice services, data centre management and managed IT services. The Amnet division supplies a variety of communication products with the principal focus being broadband services.

1H13 Results

AMM has an extremely good track record when it comes to growing its earnings, and its 1H13 result was no different. The company recorded an underlying net profit of $10 million, a 20% increase on 1H12. The

Revenue over the year jumped 43% to $136 million, with the November 2011 acquisition of L7 solutions contributing $36.5 million. The uplift in earnings was due to strong organic sales growth from the group’s core data networks and expanded hosted and cloud services offerings.

The group is also showing the ability to increase its recurring revenue base, with the annuity streams of the business at $97 million at 31 December 2012, up from $90 million at June 2012.

AMM also paid an interim dividend of 2 cents a share, a 11% jump on the previous interim payment.

L7 Solutions and the Fibre business

The group acquired L7 Solutions in November of 2011, but is still unlocking many of the synergy benefits that it promised upon acquiring. FY13 will mark the first full year of L7 being integrated within the AMM business, and we expect further opportunities to emerge, especially as group moves into the cloud services space.

The group is expanding its Fibre network, and as it grows, economies of scale will seep through, as shown below by the decreasing capital expenditure per $1 of revenue created.

Outlook

At the release of its 1H results, the company reiterated its FY13 underlying earnings guidance of at least 20% growth. We believe this forecast is achievable considering the company’s history of growing earnings by well over 20% year-on-year over the last 10 years.

As the company grows, its economies of scale benefits will begin to show in all areas, as it has already in the fibre division.

Given the group’s relatively small market share we believe that a combination of organic growth and acquisition based growth (L7 Solutions) will hold the company in good stead in the coming years.

Amcom Limited was issued as a share to buy to our members on March 11th, if you would like further information you can sign up for FREE share recommendations and access all our research files on not only AMM but all our current trading ideas. Simply click here and starting trading today, free for 7 days.

Telstra Corporation Limited (TLS) is a full service domestic and international telecommunications provider and is without question the dominant telco in Australia.

The company provides telephone exchange lines to homes and businesses, supplying local, long distance and international telephone calls and supplying mobile telecommunications services. TLS also provides data, internet, on-line services and directory services.

TLS has five key business segments:

 
FY12 Results

The groups’ FY12 results revealed low, but stable growth. EBITDA was $10.2 billion, a 2.1% increase on the prior year’s result on a guidance basis. Revenue over the year climbed 1.3%, to $25.4 billion.

TLS’s mobile division, which accounted for over 30% of entire group’s EBITDA, continues to be one of the company’s strongest contributors. The Mobile division reported an EBITDA of $3.12 billion, an 18.4% increase on the prior year’s result.

The group’s margins in this division also grew over the year from 33%, to an impressive 36% in FY12.

Investor day – strategy

The group’s investor day focused on the medium/long-term strategy and positioning of TLS. A few of the key points we gleamed from the presentation in regards to th core/mature business’s fixed lines, mobiles and internet:

 
The group plans to extract growth out of the less mature segments such as the Network Applications and Storage, Mobile Broadband or Foxtel.

Investor day – Decrease in Capex

A real positive announcement to come out of the investor day was the targeting of a lower capex/sales ratio.

TLS set it will target a capex/sales ratio of 14% in the medium-term, down from the 15% it has forecasts for FY13. This is most likely a result of the group’s involvement in the NBN, which is likely to be less capital intensive than its current network.

Looking ahead

TLS’s FY12 results showed the type of consistent growth we have come to expect. The investor update was a realistic approach to the business, with TLS understanding that it needs to protect its mature business rather than strive for unrealistic growth.

TLS is currently trading on a forecast yield (28c for FY13) of over 6.1%, fully franked, or 8.7% on a pre-tax basis. This yield, while not as attractive as before, is still likely to be enticing to investors given the low interest rate environment.

The aim of a lower capex/sales ratio is also good news as the high capital intensive nature of the business has always been a concern to market pundits. Overall we expect a solid result from TLS for the 1H13 and this should translate to further share price growth.

This article was distributed to our members on January 24th, if you would like further information you can sign up for FREE 7day recommendations and access all our research files on not only TLS but all our current trading ideas. Simply click here and starting trading today.

TPG Telecom Limited (TPM) wholesales bandwidth and other telecommunications services.

The company also delivers a full range of telecommunications products and services to home and business consumers through its retail operations.

Its network infrastructure includes fixed line, fibre and wireless services connecting voice customers with call collection areas throughout Australia and data and internet customers with more than 350 exchange areas.

FY12 results

Last week TPM reported their FY12 results, which showed an EBITDA of $261.4 million, a 12% growth on the prior year. The result was slightly ahead of its upgraded EBITDA guidance of between $250 million and $260 million.

TPM posted a net profit of $91.0 million, a 16% rise on prior corresponding period. The result was hurt by a pre-flagged $23 million one-off tax expense relating to a change in taxation legislation.

Normalised NPAT (which excludes one-off expenses) jumped 46% to $114.2 million. Total revenue over the period lifted 15% to $663.1 million.

Nextgen

Late last month Leighton Holdings announced that it is exploring the sale of its telecom assets, in an effort to reduce balance sheet pressures.

It is believed that Nextgen Networks, which specialises in high performance, premium data services for corporate, government and carrier markets, is on the chopping block.

TPM is reportedly interested in the assets which are expected to fetch anywhere between $500 million and $800 million. We think that the business would be a perfect strategic fit for TPM and could provide some synergy benefits with its current infrastructure.

Given that Nextgen has forecasted for a CY13 EBITDA of $125 million we believe that TPG would be able to acquire the asset completely through debt, given earnings would more than cover the extra debt liabilities.

A capital raising is also a possibility, but given the likely earnings accretive nature of the purchase we can’t see a raising being completed at a steep discount.

Outlook

TPM has been a consistent performer over the last few years, growing earnings in what could only be described as a weak consumer environment.

The group has forecasted EBITDA growth of over 6% for FY13, which we feel is conservative. TPM has a history of conservative estimates with only 6% EBITDA growth forecasted for FY12 and 12% achieved.

The possibility of the purchase of Nextgen is also appealing, given the likely favorable terms TPM would be able to achieve due to Leighton’s need to relieve balance sheet pressures. Overall we think TPM has the capacity for continued growth and this is likely to be reflected in its share price.

iiNet (IIN) is the third largest Internet Service Provider (ISP) in Australia.

IIN has built its own network (the iiNetwork), boasts the largest Voice over IP network in the country, abolished monthly phone line rental with Naked DSL and has released wireless modem-and-phone-in-one BoB to the world.

Acquisitions driving growth

A large part of IIN’s growth has come from acquisitions and evidence suggests the group is effectively managing their integration into the current business structure.

In late 2011, IIN purchased TransACT, an ISP provider in regional Victoria and the ACT. Early this year, it acquired South Australian-based ISP Internode.

The acquisitions helped lift FY12 revenue by 19%. IIN was able to report another blockbuster earnings result, with full year operating profit rising 47% to $145 million.

The group expanded its profit margins thanks to revenue increases, efficiency gains and operational cost-outs. The robust growth in profit also helped deliver a 17% jump in the full year dividend, to 14 cents (8 cent final dividend).

Cross selling benefits

A key benefit of IIN’s growth strategy is the cross selling opportunities available to it.

IIN offers a range of products and services to both residential and business customers. In addition to providing internet access, the company offers hardware (modems, routers, etc.), television (fetchtv), NBN, and phone services.

The complementary nature of these products, and the recent growth of IIN’s client base, sees it well placed to deliver on its aim of increasing the average product per customer from 2 to 3.

Outlook

A large part of IIN’s earnings growth has come from acquisitions, and the group is on track to achieve cost synergies from TransACT and Internode in FY13. The synergies are expected to drive cash flow and net profit growth this financial year.

Longer-term, the growth in IIN’s customer base, coupled with its expanded product offering, should provide the company with more cross selling opportunities.

We are confident in IIN’s ability to continue its strong growth path, helping to boost dividends and the return to shareholders.

Weekly Buy Recommendation: Telstra (TLS)

Telstra Corporation Limited (TLS) is a provider of telecommunications and information products and services, arguably best known as Australia’s dominant telco company.

Its principal activities are the provision of telephone lines; national local, and long distance, and international telephone calls; mobile telecommunications; data; internet and on-line; wholesale; telephone directories; and pay TV.

TLS owns a 50% stake in Foxtel while Newscorp (NWS) and Consolidated Media Holdings (CMJ) hold 25% each.

Results confirm turnaround

TLS’s 1H FY12 results showed a return to EBITDA growth after years of stagnation. EBITDA grew 3.7% to $4,750 million when compared to the $4,580 million in FY11.

Total revenue climbed by 1.1% to $12,419 million, whilst operating expenses declined 1% to $7,751 million over the same period.

One of the major earnings drivers for the company is its mobiles products; revenue was up 10.9% to $4,393 million year on year. Revenue from this product line alone makes up of one-third of TLS’ revenue.

The growth in Mobiles is impressive, especially when considering EBITDA margin of 34% was considerably higher than Optus’ 25.9% and Vodafone & Three’s 16.3%.

TLS has the only 4G network in Australia and with many new mobile phones being designed with 4G capabilities, the company can continue to experience strong growth in this market.

$11 billion NBN booty

Earlier this month TLS finalised its definitive agreements with NBN Co and the government for its participation in the NBN rollout.

The agreement will provide the company with approximately $11 billion in post-tax net present value over the long term life of the agreement.

The $11 billion includes compensation from the government for decommissioning its copper network and allowing the NBN to use some of its infrastructure.

In a strategy update on April 19^th, TLS said it expected to generate $2 – $3 billion in free cash flow over the next three years, subject to the NBN roll out schedule and market conditions.

TLS also said that it didn’t have the franking capacity to increase dividends before 2014 and that it had no immediate plans for a share buyback.

Arguably a better longer-term share price driver for a company is the implementation of a dividend increase over a buyback.

A dividend increase signals confidence in the long-term prospects of a company, and that TLS’ management has recognised this is a positive thing for shareholders.

Widening yield differential signals positive outlook

TLS is currently trading on a forecast yield (28c for FY12) of over 8.5%, fully franked. This is equivalent to 12.1% pre-tax.

TLS has been able to maintain a 28 cent per share dividend since FY07 and has forecast the same amount for FY12 and FY13.

Given the healthy sums of cash TLS is generating and following this month’s strategy update, we would anticipate a dividend increase from 2014.

When considering the next likely move in interest rates is down, we believe income-oriented investors will increasingly prefer TLS’s dividend yield over potentially lower interest rates on their savings accounts.

As such we think TLS is a stock to watch in the coming months.

Click Now for FREE Trading Recommendations

TPG Telecom Limited wholesales bandwidth and other telecommunications services. The Company also delivers a full range of telecommunications products and services to home and business consumers through its retail operations.

Telecommunications Stocks TPG announced its 1H FY12 earnings, showing a net profit of $55.7 million a 65% increase on the prior corresponding half. The results beat analyst expectations.

Revenue grew 17% to $324.5 million over the same period.

The company said that the growth continued to be driven by its home bundle plans, which grew by 49,000 in the half.

The company declared a 2.75 cent per share dividend, fully franked.

To Access FREE Daily Trading Recommendations, Click Here!

Telstra (TLS) Finalises Deal For NBN Network

Telstra Corporation Limited is a full service domestic and international telecommunications provider for Australia.

The Company provides telephone exchange lines to homes and businesses, supplying local, long distance and international telephone calls and supplying mobile telecommunications services. Telstra also provides data, internet, on-line services and directory services.

Telecommunications Stock Telstra announced that it has finalised its $11 billion agreement with the federal government and NBN co for the rollout of the National Broadband Network (NBN).

The agreement will see Telstra receive close to $11 billion over the life of the agreement, which ensures that the company’s infrastructure will be used by the NBN.

CEO David Thodey said that Telstra has concluded almost three years of intense and complex negotiations and is pleased to deliver this positive outcome for customers and shareholders.

Receive Daily FREE Trading Recommendations, click now.

Telstra (ASX:TLS) is a provider of telecommunications and information products and services, arguably best known as Australia’s dominant telco company.

Despite its troubles in recent years, TLS is a staple holding among retail investors and is still widely considered a blue chip stock.

Its principal activities are the provision of telephone lines; national local, and long distance, and international telephone calls; mobile telecommunications; data; internet and on-line; wholesale; telephone directories; and pay TV.

Today, TLS reported a 16.8% decline in FY11 net profit to $3.23 billion, although the result topped analyst expectations of a $3.09 billion profit.

Total revenue grew 0.7% on-year, whilst EBITDA fell 12.4%, matching TLS’ previous guidance.  A final dividend of 14 cents was declared, bringing the full year dividend to 28 cents.

TLS forecast a similar full year dividend in FY12, but this time was expecting low single digit growth in revenue and EBITDA.

The group based its forecast on the recent improvement in customer satisfaction as well as initiatives to simplify the company.

TLS has been one of the shares to buy today following the release of its results.

Click to receive FREE Shares to Buy Advice.

Telstra (TLS) is a provider of telecommunications and information products and services, arguably Australia’s dominant telco company.  TLS has also long considered among the market’s blue chip stocks.

Its principal activities are the provision of telephone lines; national local, and long distance, and international telephone calls; mobile telecommunications; data; internet and on-line; wholesale; telephone directories; and pay TV.

TLS has been one of the shares to sell almost since the T2 float, independent of economic conditions, as customers have been shifting away from spending on landline products.

On 26 November, the Australian Senate has passed a bill to split TLS into separate retail and wholesale networks.

TLS will be required to give up parts of its existing copper-wire network in order to make way for the rollout of a fibre-optic network.  In return, the group will receive $11 billion in compensation.

CEO, David Thodey, said the compensation will be used to help fund acquisitions, pay down debt and/or initiate a share-buyback.

The bill will now head to the lower house for final approval.

Get daily blue chip stock news and TLS advice with a free trial.