Small Caps | Jul 23 2015
-New blue chip clients
-Increased buying power
-Cost synergies too
By Eva Brocklehurst
SpeedCast International ((SDA)) has made its eighth acquisition under current management, buying NewSat's ((NWT)) teleport and satellite services business for $12m. The acquisition has excited brokers as it adds multiple positives to the company's service offering, increasing scale and capacity flexibility.
The deal adds two teleports – Adelaide and Perth – to the Australian business which will allow for future traffic consolidation and service expansion. The customer base is similar and should increase SpeedCast's penetration in the energy and government market as these teleports service a number of blue chip resources and government clients. The acquisition also comes with a 24/7 network operations centre.
The company already owns two teleports in these cities but the new infrastructure will add capacity and potentially allow SpeedCast to access new satellites, given each existing teleport can only be linked to one satellite. SpeedCast leases space on 41 satellites and utilises 28 teleports. Underlying service revenue has grown to an estimated US$135.4m this year, Macquarie notes.
The acquisition will be funded by cash and debt reserves and Macquarie considers the company bought the business at the right price. The company's growth strategy is predicated on ever increasing data requirements, targeting market share gains and geographic and customer diversification.
UBS concurs, believing it is an attractive price for strategic assets. Cost savings will also flow from the transactions, as SpeedCast will be able to leverage its scale and buying power to renegotiate existing bandwidth agreements and derive cost benefits from shifting customers to the newly-acquired teleport infrastructure.
As Macquarie maintains, demand for remote communications and bandwidth can only grow. This situation, plus industry consolidation opportunities, underpins an Outperform rating and $3.60 target for the stock. The acquisition is expected to generate revenue of $22m and earnings of $3.8m in 2015, pre synergies. UBS increases 2015 estimates by 2.0% and 2016 by 11% as a result of the purchase and maintains a Buy rating and $3.65 target.
FNArena's database shows three from three Buy ratings for SpeedCast International. The consensus target is $3.43, which signals 0.4% upside to the last share price. Targets range from $3.05 to $3.60.
See also, Accelerating Demand Lights Up SpeedCast on June 16 2015.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.
