Please digest with a grain of salt (CCG has paid for this coverage), yet some interesting perspectives here nonetheless.

Underlying EBITDA guidance remains at $6.5m to $7m. Market cap of ~$30m.

A strategic review is also underway, which may unlock value (i.e. spin-off of a business unit).

Happy to continue holding here, given the ongoing execution and pending catalysts.

911,273 shares were purchased at 7.5c by Comms Group (CCG) Non-Executive Director (NED) Ryan O'Hare (~$68,000), which brings his total holding to 4,679,273 ordinary shares plus 20,729,650 ordinary shares held in escrow until 29 January 2022 and 20,729,650 ordinary shares held in escrow until 29 July 2022. His total holding (46,138,573 units) is worth around $3,875,640 at current prices (8.4c). Not an enormous buy relative to his total holding, but a sizeable buy in absolute terms nonetheless. One aspect I like about this company is that both management and board have a significant amount of skin in the game.

Ryan’s telecoms career began in 1993 when co-founding telecommunications service provider corpTEL Communications. corpTEL rapidly became one of the largest privately-owned B2B telecom groups in Australia. Ryan was its major shareholder, Chief Executive & Chairman until its sale to AAPT (TPG) in 1998. People Telecom Limited was also co-founded by Ryan in 2000. Again, as a B2B telecoms provider, however, in this instance it owned its own data (and fibre) network and was a significant broadband network operator while an ASX listed entity. Today it’s part of the Vocus Group. In 2007 Ryan founded Next Telecom in Australia that is now recently part of Comms Group Limited. In 2014, Ryan founded Next Business Energy, one of Australia’s premium B2B energy groups that won the fasted growing company in Australia in 2018 recording revenues over $100 million.

CCG CEO, Peter McGrath, has bought 1.3% of the company on the open market as of Monday (9th May 2022) ($400k AUD) which is >1.3x his annual base salary. A very bullish signal. With this purchase, he now becomes a substantial holder (owns >5% of the company now). At 8.6c, CCG is on an FY23e EV / EBITDA multiple of 4.8x.

Following on from the previous straw it is pleasing to see these comments, which clarify the situation somewhat.

"Right at the start of the second half, we did see reduced spending on domestic telephony services by a key global wholesale client, one of our larger global wholesale clients. They are an overseas company but they run a major (domestic) consumer services business in the food services area. They have not churned and moved to someone else, so they are still with us, they have just re-engineering their internal processes and as a result, they are not spending on some of the inbound services, to the level that they were before. In fact, the levels are reduced significantly, and that has resulted in a loss of revenue and profit within the period, which is what we have mentioned in our release." — Peter McGrath, Presentation Section

"We would see the announcement today as being a temporary thing, we expect to recover the revenue we have lost from this customer very quickly. We clearly want to work hard to build the share price and the equity value in the business. With a key focus on the organic opportunities, it is up to us now to bring those across the line and demonstrate to the market that we can grow the business organically and I'm very confident on that as it stands today." — Peter McGrath, Q&A Section

I'm changing my sentiment back to a buy (from hold) in light of this.

Source: https://commsgroup.limited/news/182467-comms-group-ceo-md-presents-at-nwr-communications-virtual-conference

Unfortunate developments today as released to the ASX.

If one takes the low end of the new FY22 guidance range (of A$4.4m EBITDA) and applies an 8x multiple, one arrives at a short-term fair value target of A$35.2m (MC). Considering there are 361m shares on issue, that equates to a share price target of 9.75c (and up to 10.6c at the high end of the FY22 guidance range: A$4.8m EBITDA)). Further, if one takes a multi-year view that earnings will increase across the next couple of years, driven by Vodafone Global, that SP target rises substantially. Thus, on the surface, CCG certainly does look cheap at the current price, particularly after today's fall.

However, the above back of the envelope valuation exercise relies on the assumption that the CCG business is still in a strong competitive position. I think it would be helpful to get a view of why a key global wholesale client is reducing its spending on CCG's consumer services. If we can regain some confidence that this is an external client-specific issue and not an internal CCG service-specific issue (i.e. sub-par service or a shift to a competing service), then the market can retain some confidence that spending per customer should hold moving forward and that CCG is poised to deliver on earnings growth.

I'm changing my sentiment to hold for the time being until I can regain some confidence in the competitive position of CCG, upon which I may accumulate, should findings be favourable (the reverse also holds true). This may be an excellent accumulation opportunity or the first signs of weakness/breakdown in what appeared to be a very strong story on the surface.

Will report back with the findings.

I like how the chart is shaping up here on the weekly.

It appears that there were T50 investor(s) (ones with reasonably meaningful positions) who have been exiting and creating overhead resistance at 11.5c+ (even on the day of the Vodafone announcement as evidenced by the large upper wick on the week of the 14th March 2022).

But on the other hand, there also appear to be actors who are soaking up all of the available supply. Thus, the CCG share price has been range-bound between c 9.5c and c.11.5c since the week of the 8th of Nov 2021.

However, this week, CCG closed at 12c, with a nice green candle... is this the break that suggests sell-side supply has dried up that will allow a move higher?

We will find out soon.

Not a massive amount purchased (50,000 units at 11c), but nice nonetheless to see Mr Ben Jennings dip his hand into his own pocket to buy on market.

Ben Jennings is a Non-Executive Director of CommsChoice Group. He has spent almost 18 years as an accountant working in both commercial and public practice roles in both Australia and the United Kingdom.

He established middle-market advisory firm Jennings Partners Chartered Accountants in early 2009 to provide commercial advisory, mergers and acquisition, income taxation, and Finance Director/Chief Financial Officer services to SME businesses, venture capital and private equity groups.

He is currently engaged in Non-Executive Director roles for Helioscreen Australia Pty Limited, Web Profits Pty Limited, Marimekko Australia Pty Limited and Agility Finance Pty Limited.

Ben is a qualified Chartered Accountant from the Institute of Chartered Accountants in Australia and New Zealand and holds a Bachelor of Business (Accounting) from Charles Sturt University.

Analysis from "Icahn" on HC with input (rev est.) from CCG management:

The market is completely missing how transformative this is. This easily adds 80% - 120% upside to the current market cap by FY24e without giving credit to other significant organic and inorganic growth opportunities for the business.

The quick maths is that CCG is expecting to spend roughly ~$1m over the next year (half opex, half capex) to make $8-10m in incremental revenue at a ~60-65% EBITDA margin (70% gross margins minus a recurring annual staff cost of ~$500k-$750k). So CCG will essentially add $5m to $6.5m in incremental EBITDA by FY24e vs. the pre-announcement FY23e run-rate of $7m today.

Yes, you read that correctly, CCG has increased it's FY24e EBITDA by 70% to 95%, with scope to re-sell even more products through Vodafone in the future. Assuming this incremental EBITDA is rated at what CCG is currently trading at (7x EBITDA), this means an incremental equity value of $28m to $38.5m vs. $34m today !!!

This goes to show the tremendous optionality at play when backing a proven & aligned management team. This partnership also paves the way to winning additional ones given becoming the quasi-exclusive GLOBAL supplier of UCaaS to Vodafone Enterprise will generate significant inbound interest for CCG.