It’s the tiddler telco with blue chip backers that raised $7.5 million when it went public a couple of years back — and is only worth a fraction of that now.

Market shifts and the loss of a big, long-term client has forced United Networks (ASX:UNL) to go back to the drawing board to work up new products and slash costs in a bid to right the ship.

Centred on a global roaming SIM card, technology and changing markets have played havoc with the company’s business plan.

United Networks went public in a $7.1 million IPO at the start of 2017, issuing shares at 20c. The stock is trading now for only around 2c, pressured by the loss of a key client which has hurt revenue.

United Networks was one of the worst performers that year with the 68 per cent decline of its share price, eclipsed only by  ServTech Global (down 90 per cent) and Magmatic Resources (down 89 per cent) according to a study by accounting major Deloittes.

Soon after its IPO APP Securities — which was the broker to the company’s public share issue — put out a research note, arguing United Networks shares were worth 55c.

That may have been heartening for the key backers such as well-known investors CVC and Soul Pattinson.

But it was a temporary sugar-hit. The share price has slipped steadily since, amid weaker-than-expected underlying earnings:

United Networks shares (ASX:UNL) since listing in January 2017
United Networks shares (ASX:UNL) since listing in January 2017

Both CVC and Soul Pattinson took up equity in United Networks in a fund raising before it hit the ASX.

Like many rapidly growing private companies, United Networks prospered early on thanks to a big contract with a large company, leaving it exposed if that client walked.

United bills itself as an ‘international mobile virtual network enabler’ providing telco, data and value added services mostly to insurers, airlines, banks and travel agents. Most of its revenue comes from global roaming and data products.

40 per cent revenue from one client

When United Networks came to the share market, around 40 per cent of revenue was generated from a single client, travel insurer Cover-More.

Earlier this year, the client formally terminated the contract with the telco minnow, with revenue to take a hit from the September quarter.

“Cover-More was with us for six years using a legacy product, a global SIM card. But it has not continued,” United’s chief executive, Nicholas Ghattas told Stockhead. “Our new product is app-based.”

The arrangement with Cover-More saw the travel insurer provide the SIM card to customers who would then pay United Networks to use.

That deal structure has been reversed in more recent deals.

This week, for example, a deal with global health insurer AIG will see the insurer pay United Networks directly, providing it with much greater certainty over revenue flows.

Collapsing prices for global roaming services

Along with weak volumes from the Cover-More contract weighing on earnings, there has also been a collapse in prices industry-wide for global roaming services as demand shifted to software apps from SIM cards.

This has come as industry-wide pricing and margins have shifted, from around 25c/megabyte of data for the likes of United Networks five years ago, to around 1.5c now, Ghattas said.

“We still have a large competitive edge,” when compared with the telco majors such as Telstra and Optus, he says.

But until positive earnings coupled with revenue growth can be demonstrated, share market investors are likely to be on the back foot in looking at the company’s shares.

It promised investors would see a turnaround in cashflow this year as it sought to drive revenue growth following recent product investment.

It achieved that target in the June quarter, at least, plugging the cash leak, although until revenue growth is assured, it is hard to see its shares recovering from their losses.

“We were cashflow positive in the last quarter (ending June) and the focus now is on growing revenue,” Ghattas said.

“All shareholders are in regular contact with us over a range of issues,” Ghattas said, as pressure continues to restore the company’s health which will help revive the share price.