More Positive Views on iiNet

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By Chris Shaw

Recent acquisitions and product innovation has helped iiNet ((IIN)) become Australia's second largest internet service provider and the growth of the company has seen Deutsche Bank initiate coverage with a Buy rating on the stock.

Both elements of iiNet's growth are expected to continue, Deutsche seeing initiatives such as "BoB" (broadband in a box) and "fetchtv" as likely to continue to attract subscribers, while others will come from further acquisitions in the market.

The acquisitions made by iiNet in recent years have delivered in the key areas of subscriber growth and average revenue per user (ARPU), a trend Deutsche suggests shows no signs of changing.

This should deliver solid earnings growth, Deutsche Bank forecasting earnings per share (EPS) growth of 16% annually through FY13. Even stronger EPS growth of 24% is expected in FY11 as iiNet beds down the recent Netspace and AAPT Consumer Division acquisitions.

In terms of actual EPS, Deutsche Bank is forecasting 28c in FY11 and 31c in FY12. This compares to consensus forecasts according to the FNArena database of 27.8c in FY11 and 30.7c in FY12. Broker forecasts are relatively consistent around these levels.

The establishment of a National Broadband Network (NBN) will potentially impact on iiNet, but as Deutsche Bank points out this network is at least eight years away from being in operation. While higher capital expenditure is likely as iiNet adjusts to the new network, Deutsche's earnings forecasts already allow for this.

The NBN should also offer opportunities for iiNet in the view of Deutsche, as the network should remove Telstra's ((TLS)) monopoly in that space, so improving iiNet's ability to compete. What should also help here in the broker's view is iiNet can offer better customer service than Telstra, so supporting its growth outlook.

Others in the market agree as the FNArena database shows iiNet is rated as a Buy by all five brokers to cover the stock. The consensus price target is $3.23, which is in line with Deutsche's $3.15 price target.

Shares in iiNet today are stronger and as at 11.30am the stock was up 9c at $2.85. Over the past year the stock has traded in a range of $1.67 to $3.13 and at current levels there is implied upside of almost 14% to the consensus price target in the FNArena database.

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