Hold the phone: here are the best small cap telco stocks over the past year
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There has been no shortage of news at the big end of telco town of late.
But what’s the outlook for the broader, small cap ASX-listed telco sector?
There are about 30 telecommunications-related ASX stocks — ranging from integrated telcos to junior carriers to equipment providers (see table below). That’s not including networking providers such as Internet of Things stocks.
A few weeks ago when the TPG-Vodafone tête-à-tête went public, telco share prices soared in reaction.
But in general the sector has been patchy over the past year — particularly amid pricing pressure in consumer markets.
>> Scroll down for a table of 60 ASX telco-related stocks and their share price performance over the past year
Across the board, the stocks average out to an 8 per cent downturn year-on-year (see table below).
But if you remove the large cap names such as Telstra, TPG, Vocus, Hutchinson (Vodafone) and Speedcast, the broader sector is down about 19 per cent.
Telcos focused on business services seem to be at an advantage.
The best of the small-cap bunch is comfortably 5G Networks (ASX:5GN), a networking provider that listed on the ASX in November last year after raising $4 million selling shares at 25c a pop.
5G Networks does not actually have anything to do with the coming fifth generation mobile phone technology — it provides broadband services to businesses.
Since listing, 5G Networks is up 116 per cent, only slightly behind Hutchinson (ASX:HTA), which half-owns Vodafone.
5G is trading at around 54c giving it a market cap of $27 million. Last month, it picked up two subsidiaries of fellow telco Inabox (ASX:IAB).
5G boss Joe Demase told Stockhead it was a good time to be on the business side of the telco sector.
“It’s been fascinating to watch all of the news, because we’re not really focused on residential or mobility,” he said. “So from a business perspective we’re excluded from the day-to-day commentary, which is good.
“There is a lot of price pressure. It’s a race to the bottom as far as pricing and what you get for that is concerned.
“And you’ve got all of these new emerging technologies like Netflix which are just chewing up telco networks’ capacity and there’s really no reward for the telcos for those types of services. Which is what makes it so beneficial to be in the business sector.
“For us, it’s a great time to be in the sector because there’s a lot of disruption going on, and with Telstra going through a lot of changes it creates more opportunities for companies like us, Superloop, Macquarie, the mid-market, mid-tier providers.”
Mr Demase said the company’s focus on acquisitions had put it in a good position heading into the 2019 financial year.
“We’re quite happy with where we’re at, we said in the prospectus that we were going to be reasonable aggressive with acquisitions and we’ve completed two since then,” he said.
“We’re looking forward to the next year, I think we’re actually undervalued. The next few months is about consolidating our business, expanding our capacity, and down the track we’d also like to own some data centres.
“That’s the growth plan for the business. We want to look for businesses that are adding value and building on the 200 staff we have across 12 offices.”
Small cap ISP company Spirit Telecom (ASX:ST1) is another winner, with shares up 71 per cent over the past year, hitting an intraday high of 20.5c today, although the share price has depressed slightly over the past six months, down 18 per cent.
Back in March, Stockhead expert Tim Knapton waxed lyrical about Spirit’s wireless internet alternative — its line-of-sight and fibre solutions provide super fast internet to multi-dwelling units, or apartment blocks, student accommodation and community housing.
TPC Consolidated (ASX:TPC) is another small cap punching above its weight, with a 22 per cent increase in share price year-on-year, hitting $1.10 today.
The $12.4 million company is a prepaid provider and was one of Hugh Bradlow’s — president of the Australian Academy of Technology and Engineering and CTO of Telstra — picks for small cap companies that could benefit from the forthcoming 5G network infrastructure rollout.
The majority of the 27 listed telco companies however are down over the past 12 months. That includes Inabox, whose value halved when it was had to issue a profit downgrade after one of its acquisitions posted a significant revenue fall. Inabox is down 37pc year-on-year and has traded between 36c and 70c since.
However the sale of two of its subsidiaries to 5G Networks, Inabox told investors, “cleared the way for Inabox to maximise the contribution from its most profitable growth engine, its indirect business”.
That business — which focuses on white-labelled telecommunications, billing and support services — was also for sale, Inabox said. It generates $50 million revenue per year and EBITDA earnings of $5 million.
Here’s a table of ASX-listed telco stocks and their share price performance over the past year:
Scroll or swipe to reveal table. Click headings to sort
|ASX code||Company||Six-month price change (%)||12-month price change (%)||Price Sep 10 (intraday)||Market Cap|
|ST1||SPIRIT TELECOM L||-0.18||0.71||20.5c||49.0M|
|SW1||SWIFT NETWORKS G||-0.22||-0.03||33c||39.4M|
|WRR||WORLD REACH LIMI||-0.33||-0.52||12c||6.3M|
|SAS||SKY AND SPACE GL||-0.63||-0.69||5.8c||108.9M|