Spirit Telecom: WWW Acquisition (ST1)

Spirit Telecom went into trading halt this week, prior to announcing the acquisition of World Without Wires (WWW), a consumer WiMax service provider operating across South East Queensland.  The purchase was funded by a mix of cash and new shares, for a total consideration of $4.6m.

This acquisition will increase revenue by 23% and GP by 26%, while increasing shares outstanding by 12.5%.  Prior to the acquisition, the market cap at 12c equalled $22m, so we have increased market cap by 21%, a good deal for the original shareholders.

Looking at Spirit YoY, we see revenue of $11.45m (30% up from FY16’s $8.8m) and GP of $7.2m (60% up from FY16’s 4.5m).  The entity is now profitable, with NPAT of $809k, or 0.44c per share – equating to a PE of 27.

I had actually taken up the opportunity to increase my holdings this week when the share price dropped to 10c.  As Spirit is now profitable, with earnings accretion from the acquisitions, Spirit’s business is now “in orbit” (That is, run rate revenues deliver profitable amounts of revenue on a semi-fixed cost base, meaning that the incremental revenue from new customers will almost fully flow to the bottom line).

Management appear to be pretty trigger-happy with acquisitions but these last 2 have seemed pretty sensible to me.  It’s only a matter of time until the market wises up to this great deal, who will likely be the most profitable consumer broadband provider when NBN is fully rolled out.

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