Amcom Showcases The Cloud

This story features RAPID LITHIUM LIMITED. For more info SHARE ANALYSIS: AMM

-Contract value strategic in short term
-Robust results, outlook expected
 

By Eva Brocklehurst

A contract with Melbourne University has put Amcom Telecommunications ((AMM)) in an enviable position going forward. The company will install its Amcom Cloud Collaboration (ACC) technology across the university's 13,000 users. This is the first major contract since the ACC was launched in 2013 and the first deployment in the higher education sector since the AARNet customer base was established, which gave Amcom access to 38 universities as well as the Commonwealth Scientific and Industrial Research Organisation (CSIRO).

Citi envisages the contract as being more strategic than financial in the short term. The size and sophistication of Melbourne University independently validates the offering and the company will now be able to use the university as a flagship example of what it can do. The contract also gives Amcom considerable visibility within the university which can only be beneficial for future sales. Financial benefits may be further off, as there is likely to be a mobilisation period where costs will be significant and the profit impact in FY15 is likely to be modest, in Citi's view.

This contract, along with 14 other deployments of ACC, should support a strong FY15 in CIMB's opinion. The broker has decided the time is right to upgrade the stock to Add from Hold, given the recent pull back in the shares after a $40m equity raising. CIMB suspects costs related to the setting up of ACC have inhibited FY14 results, although the result should be robust. The broker expects profit growth of 12.4% in FY14 and even better in FY15. This growth is likely to be driven by fibre connections, with ACC revenue building from a low base. CIMB observes Amcom is one of the more reliable earners in the small cap telco sector as a carrier with its own fibre assets and one that is relatively immune to policy and regulatory fluctuations. Amcom raised $40m in new equity in June and CIMB expects the company to detail expenditure plans at the results. The broker believes the right acquisition will add significant operating leverage to the company's platform.

Macquarie chose to move back to a Neutral rating from Outperform earlier this month, believing the upside was well reflected in the share price. The broker noted that the placement will be used to fund a number of bolt-on acquisitions, which should boost FY15 income. Macquarie expects growth of 16% in FY14 net profit, driven by the core fibre business. The broker is concerned that the push into Western Australia is being hindered by the softer resources sector. Credit Suisse also eased back to an Underperform rating from Neutral a month ago, coming to the conclusion that sales of Cisco HCS and cloud products have been slower than earlier projections. The broker thinks this bodes for a much slower take up of Cisco product in the years ahead.

Brokers will review forecasts and targets following the FY14 results on August 13. On FNArena's database Amcom has one Sell, one Hold and two Buy ratings. The consensus target is $2.13, suggesting 5.7% upside to the last share price.
 

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