Consensus community valuation
A good sign of confidence that the shares are now undervalued when management start there buyback program after sitting on it for the last 3 months. Official start date was the15th November, blue line shows share price during the period when no shares were purchased. They made a comment in the results call that they didn't want to start it during the immediate period before they released their results (21-2) and that they were having a capital allocation meeting to decide on how to spend their cash. It looks like they currently see more immediate value in a share buyback than potential acquisitions. I expect this buyback will continue whiloe the price is below $3.75
- shares bought to date
- 1.1M (22/2/22)
- 1.5M (23/2/22)
A pretty outstanding set of results. Good organic growth and the addition of opticom has made them a much bigger and better buisness than a year ago. They have delivered on everything they said they would do last year and the commentary from the investor briefing was very positive. Despite this the market hated this result and sold it down by 12% after a similiar sell off yesterday. Its now trading around 3.26 down from $4 last week. Maybe market was expecting more immediate growth? To me its a pretty crazy reaction to a vertically integrated telecomunications infrastructure buisness that is profitable, has low maintenance costs on its long life infrastructure and has great cashflow generating capabilities. It wasn't cheap last week but I think it is becoming cheap now given the growth runway this buisness still has.
The only miss was a delay in construction revenue which has been delayed due to the covid shutdowns in Q2, they made it clear that this revenue has just been deferred not lost. Comentary around outlook was positive and they expect to meet full year guidance (145M EBITA - 70M for H1), but didn't want to go on record to exceed the current full year record, but my reading was as they are very happy with the way the buisness is running and the amount of revenue contracted into the future.
91% of their revenue is now recurring. In the call they did a very good job of explaining there competitive advantage around owning their own fibre network, the multiple revenue options this generates and how they are able to capitalise on this and how they still have a ways to go on extracting the full value out of there networks. The mentioned the high demand for high speed internet and how they are robust to inflationary environment and expect to pass along costs if inflation starts to impact. Currently not much inflation in there buisness but they can see some signs of it coming.
Not much talk about capital management, but they did say they have identified several opportunities (only in Australia) that they are exploring that would be valuable assests to there buisness but nothing material yet to be disclosed. It suggests to me that a buyback will probably not happen if they get keen on an aquisition. If they buy something it can be funded from cash reserves and debt (they paid 40M down t. They are meeting this week to discuss capital allocation. No plans to pay a dividend. No detail around any buyers for the company and I think this annoucement was more to support the shareprice than any real activity.
I think this graph from the report gives a pretty clear story on how front end revenue gets converted into cashflow.
24-Jan-2022: How do you stop a share price slide in a falling market? This is how:
24 January 2022: Uniti Group Limited (UWL or Company) refers to its announcement to market on 27 October 2021, and subsequently on 17 November 2021, that the Company proposes to undertake an on-market share buyback subject to prevailing share price, market conditions and alternate uses of capital.
In the interests of ensuring that the market is fully informed prior to commencing the share buyback, the Company notes it has received approaches from more than one party indicating potential interest in an acquisition of the Company, which as of this time, do not include detail as to timing, price or conditions. Therefore, the Company notes that there is no guarantee that such approaches will result in any substantive proposal(s) emerging.
Authorised for release by the Board of Directors.
- ENDS -
Disclosure: I hold UWL shares IRL and here. UWL are up by almost 8% this morning on the back of this M&A talk confirmation. Nice to see some green in my portfolio today.
26-Feb-2021: Uniti (UWL) is a roll-up, meaning they are a growth-via-aquisition company that is buying up small telcos and bits of large telcos (they recently acquired assets from Telstra) and growing fast as a result. The two guys at the helm of UWL are Michael Simmons and Vaughan Bowen, and they grew M2 Telecommunications up from nothing to a $1.8 billion company when it was taken over by Vocus (VOC) in 2015. Simmons and Bowen then ran Vocus for a while also. They have both since moved on from VOC and are now running UWL, and trying to replicate the success they had with M2. I am always wary of roll-ups. I have consistently warned that they all unravel at some point, whether it be child care centres, vet clinics, telcos, even dental practises. Eventually they run out of cheap private companies to buy in their sector, or cheap public companies to takeover, and they begin to overpay. The whole process works by arbitraging the difference between the multiple that people are preapred to pay for a private company, and the higher multiple that can be achieved if you roll that private company into an existing public company. As long as you maintain price discipline - and do NOT overpay, it works very well. Until you run out of assets to buy at attractive multiples. Uniti are still in that successful growth stage currently, hence I'm on board (I own UWL shares) and I've posted a number of Straws on them here. I'm happy to enjoy the ride until it takes a nasty turn. I'm watching what they pay and the market's reaction to each acquisition announcement. It is usually clear when they are peaking, and you can afford to wait for them to drop a little before jumping off. However, once they turn pear-shaped, don't hang in there thinking that it will all come good again. Cash in your chips and enjoy your winnings. That's why guys like Simmons and Bowen always move on and start up another company from scratch once their companies become mature or too big. Sometimes they just takeover a small company that someone else has built up from scratch (like Uniti Wireless Ltd - UWL) and use that as their new starting point. My 12-month PT for UWL (so by the end of Feb 2022) is $2.47. I think they can get there, but if they do not, I'll probably have already moved on.
17-June-2021: One of the best looking charts I've seen this year. They took out my $2.47 price target and just kept on going. I still hold UWL. I'm raising my PT by +50% to $3.71 based on momentum and potential. Both are very positive. Good company. Management have a good prior track record of building up similar companies in the Telco space. And they are carving out a niche and competing directly with the NBN. And killing it! (In a good way)
17-Dec-2021: Update: Uniti Group (UWL) keep popping up on the Marcus Padley daily ("Marcus Today" newsletter) 12-month high (SP) list, and they're making all-time highs every week lately, including again today with an intra-day high of $4.62, and they closed just one cent short of that, at $4.61. They've gone way past where I thought fair value was, but I've decided not to sell any more for a while in RL, as that's been one of my biggest mistakes over the past decade or three, not letting my winners run - enough. I tend to keep trimming them as they rise, which makes sense from a risk management POV, but certainly limits the upside (gains). I'm raising my PT (not a valuation, just a price target) now to $4.85, because I think that $5 level might provide some resistance, and they might take a few practice runs before pushing through that $5 level with conviction, if they manage to do that. I still like UWL, and they are one of the largest positions in one of my real life portfolios. I'm not buying more up here, the air is way too thin, but I'm not going to sell any for a while either. Let's see just how high they can go!
Go you good thing!!
I’m attempting to build the negative case for UWL, any insights would be appreciated, it’s a bit thin!
· Stock on issue has increased with acquisitions and options (Buyback could temper this?)
· Long term Debt 261.9m, Cash 57.3m
· Management: Vaughn and co are excellent storytellers and it appears “everyone” has bought into the story.
· Potential growth impacts if greenfield housing developments slow down or get delayed. (But yeah, who knows what happens next with the housing market and the "politics" of the housing market will probably keep it propped up.)
· Vaughn Bowen, insider trading allegations in relation to Optus share sales in 2019 may rear its head again.
· Renumeration: Performance bonuses 50% payable on short term incentives, 50% long term.
I admit it is easy to counter these points and build a bull case for UWL, however it is useful to look at the other side of the trade. Held RL
* Financials via Tikr
Thursday 10th June 2021: https://www.ausbiz.com.au/media/the-call-thursday-10-june-?videoId=11113
That's a link to a "The Call" episode (from Ausbiz) featuring Ben Clark from TMS Capital and "friend-of-the-Strawman.com-site" Carl Capolingua from Think Markets, and they both like Uniti Group (UWL), and consider it a buy, even at these elevated levels, so it's gone into "The Call" portfolio.
The UWL coverage starts at the 38 minute mark.
[I hold UWL shares.]
The Uniti share price has increased over 140% in just over 6 months, from $1.16 in November 2020 to a close of $2.79 today. Is Uniti approaching upper value?
@Chalky posted a credible bull case for Uniti as a significant fibre network competitor to the NBN with sustained organic growth in Multi Dwelling Units (MDU) developments and brownfield.
According to Simply Wall Street data earnings are forecast to grow 54.6% per year to $72 million in 2023 (Consensus of 4 analysts. See chart) One analysts thinks it is feasible for earnings to reach $70 million by 2022, and with full integration of Opticomm and Velocity, earnings could reach $100 million by 2024.
How long can Uniti sustain this high rate of growth? Assuming earnings growth can be maintained at over 20% for several years, a future PE of 20 sounds very reasonable. So what could Uniti be worth in 2023 and 2024?
E (2023) = $72 million = 72/434 = 16.6c/share. Value (2023) = PE x E = 20 x 16.6 = $3.32.
E(2024) = $100 million = 100/434 = 23 c/share. Value (2024) = PE x E = 20 x 23 = $4.60
With potential value of $3.32 in 2023 and $4.60 in 2024, I guess Uniti is a 'keeper' for now.
Disc: Hold shares
