Hi Roger and Everyone,
First of all I would like to apologize for being secretive in the last few weeks. The reason is I have found several interesting opportunities! In this post I will talk about one of them which is presenting huge value. For those of you who remember, this is not my mystery company I have mentioned before – it’s actually BETTER!
So, did you know you can make money from air? Apparently you can!
It’s called BigAir Group (BGL)
BGL owns and operates Australia’s largest metropolitan fixed wireless broadband network. The Australian business market comprises nearly one million businesses and BGL’s network provides near blanket coverage across 7 metropolitan areas. BGL sells broadband and data services directly to business customers and also partners with other IT service companies who have existing relationships with business customers in order to deliver BGL’s high speed, cost effective fixed wireless broadband solutions. Additionally with its recent acquisition of Access point it has entered the student accommodation broadband market.
The CEO and co-founder, James Ashton, is as entrepreneurial and as energetic as they come. At the age of 27 he already managed to co-found and sell an Internet business for $20million. 10 years on and he has delivered on his promises, launching BGL by organic growth and some smart acquisitions.
This year BGL is forecasted to earn $5.2million in EBITDA or about 2cents per share. By fy12 this company is forecasted to earn between $7.5 – $10.5 million EBITDA or about $4 – $5millon NPAT on revenue of approximately $23million. Quoting from the company’s latest guidance:
“In addition the company is pleased to announce that consolidated underlying EBITDA exceeded $625,000 for March with $485,000 contribution from the Fixed Wireless division and $140,000 contribution from the Student Accommodation division. This represents an annualized “run rate” of $7.5 million for underlying EBITDA which represents an increase of 134% versus the $3.2 million EBITDA earned in FY2010.”
In order to produce these profits the company will employ about $15million of shareholders equity. That’s about 30% ROE. In contrast, Vocus, which wil benefit from BGL’s growth, is forecasted to earn $15million in EBITDA for this year and its market cap is $140million. BGL’s current market cap is only $30million!
They are currently debt free and have recently acquired their biggest competitor clever communications and access point in the student accommodation sector. The increasing focus by universities to provide on campus student accommodation provides BGL with significant scope to increase its user base.
Balance sheet wise, this company will produce tremendous cash-flow going forward from fy12 and is forecasted to pay a dividend. Now I am no Roger, but I believe this company is currently a B1 (small chance of short term borrowing to cover their trade payables) and I am quite certain it will be an A1 come fy12. (I hope Roger can confirm this). Now don’t be alarmed by this, remember Matrix needed 3 capital raisings to get to where they are now, and all were in the space of about a year!
Competitive advantages and NBN risk?
BGL’s competitive advantage includes its state-of-the-art WiMAX and proprietary network which allows it to install business-grade symmetric broadband services at speeds up to 1 Giga Byte per second and distances up to 30km from its base stations with installation taking just a few hours. Most of BGL’s competitors rely on access to Telstra’s copper network which can take weeks to install a service and often does not deliver fast symmetric speeds.BGL like other ISPs is in an essence not so much of a technology company but rather a customer services company that uses technology as the competitive vehicle to deploy those customer services.
Since BGL uses its own network it does not rely on the NBN and the access costs associated with it. Considering the fact it will take many years and to build the NBN (they can’t even get a contractor to competitively tender for it), there is enough time for BGL to grow and entrench itself in its industry.
There is not doubt that internet and data demand will grow exponentially into the future where businesses and students will require fast, efficient and quality internet services. The great advantage of BGL is no matter what happens to commodity prices, the Aussie dollar or china, BGL will continue to experience demand for its services.
At 22cents (last price) BGL is trading at just under its intrinsic value (IV) for this year, BUT looking ahead to fy12 I have their IV at between 35cents – 45cents. If you remember I have always emphasized on this Blog buying at BIG margins of safety, well this is as BIG as they get!
To me it reminds me of Matrix at $3.50 when we all knew their order book was at $180million for the next year. Sometimes it’s just a no brainer. Apparently some other people think the same (Eureka report article on last Friday and AFR article last week).
Finally, I will never forget something Roger once said during one of his presentations in Sydney last year:
He said “When you see value, it smacks you right in the face!”
Well… my cheeks are very sore!
BGL has been added to my portfolio alongside other quality businesses such as MCE, FGE, VOC and MTU.
This is a small and sometimes illiquid stock that may be volatile in the short term. I urge you to do your own research and seek and take personal financial advice. The reason is that if the share price falls in the short term, you can at least blame your financial advisor and not me. ;-)