Treading water

Go Internet 24 March 2016 Update

Go Internet

Treading water

Full year results

Telecoms

24 March 2016

Price

€1.74

Market cap

€10m

Net debt (€m) at December 2015

5.5

Shares in issue

6.0m

Free float

31%

Code

GO

Primary exchange

AIM Italia

Secondary exchange

NA

Share price performance

%

1m

3m

12m

Abs

(2.4)

(35.5)

(53.7)

Rel (local)

(8.3)

(27.7)

(43.9)

52-week high/low

€3.86

€1.30

Business description

GO internet provides fixed broadband internet and telephone services using fourth-generation (4G) wireless technology. The service is offered in the Emilia-Romagna and Marche regions of Italy, where GO has an exclusive right of use for 42MHz in the 3.5GHz frequency band known as 4G.

Next event

AGM

20 April

Analysts

Bridie Barrett

+44 (0)20 3077 5700

Anna Bossong

+44 (0)20 3077 5737

Go Internet is a research client of Edison Investment Research Limited

GO internet’s (GO’s) FY15 results reflect the steady expansion of its network. FY16 has started somewhat slower and we now anticipate a more measured network expansion ahead of the funding from its majority shareholder and the proposed capital increase. We reduce our forecasts and valuation accordingly.

Year end

Revenue (€m)

EBITDA*
(€m)

EPS*
(c)

EV/sales
(x)

EV/EBITDA (x)

P/E
(x)

12/14

3.9

1.4

0.7

4.0

11.0

248.6

12/15

5.1

2.0

5.1

3.0

7.8

34.1

12/16e

6.8

3.0

6.1

2.3

5.1

28.5

12/17e

8.4

3.9

9.3

1.9

4.0

18.7

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Steady progress during 2015

Revenues of €5.1m (vs our forecast of €5.5m) and EBITDA of €2.0m (forecast €2.2m) were short of expectations but still increased 32% and 41% respectively. There were 8,238 net subscriber additions and we calculate an ARPU of €14.2 per month, down slightly on FY14, affected by price discounting in the latter months of the year. Operational leverage is starting to show, with 60% of each new €1 revenue converting to EBITDA and 88% of this converted to operating cash in FY15. The group spent €4.5m on expanding its network coverage (higher than our forecast as the company took advantage of early payment discounts), resulting in a net cash outflow in FY15 of €2.7m. Net debt increased to €5.5m (from €2.7m).

Slower expansion at the start of 2016

The rate of subscriber additions has slowed in FY16 so far, with 1,049 subscribers added in January and February, 37% below last year. This suggests GO is moderating marketing and network roll-out until it has secured additional funding. It has confirmed plans for a €4m capital increase and a €4m convertible bond, although the timing is not clear. In the meantime, GO’s majority shareholder, FC Gold, has issued a ‘Comfort Letter’ saying it will provide funding instalments up to €2m by 31 December 2016. In light of the slower pace of growth and lack of clarity on the timing of funding, we have reduced our forecasts to reflect a slower network expansion, reducing our year-end subscriber target, to 40k from 42k, and our FY16 and FY17 EBITDA by 10% and 17% respectively.

Valuation: Hinges on network expansion pace

GO’s valuation is contingent on the pace of network expansion. Provided FC Gold honours its commitment (the nature of any guarantees has not been disclosed), GO should have sufficient funding to continue to invest in growth its current regions. Our base case DCF, which assumes this, returns a value of €3.4 per share (down from €4.4 previously). However, to accelerate the pace of its network roll-out or participate in the upcoming spectrum auctions that would enable expansion into new regions, additional funding is required – clarity regarding this is a key catalyst for the shares in the short term.

Exhibit 1: Summary forecast changes

2015

2016e

2017e

 

forecast

actual

difference

old

new

difference

old

new

difference 

Revenues

5,495

5,144

(6%)

7,636

6,764

(11%)

10,293

8,414

(18%)

EBITDA

2,235

2,010

(10%)

3,675

3,040

(17%)

5,287

3,895

(26%)

Net income

215

151

(30%)

879

364

(59%)

1,554

557

(64%)

Capex

(3,473)

(4,476)

29%

(3,550)

(3,256)

(8%)

(3,568)

(3,239)

(9%)

Net debt

4,964

5,463

10%

5,517

6,092

10%

4,836

5,992

24%

Source: Edison Investment Research

Exhibit 2: Summary forecasts

€000s

2013

2014

2015

2016e

2017e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

 

 

 

 

 

Revenue

 

 

2,645

3,899

5,144

6,764

8,414

Cost of Sales

 

 

(1,170)

(2,053)

(2,735)

(2,930)

(3,588)

Gross Profit

 

 

1,475

1,846

2,409

3,835

4,826

EBITDA

 

 

887

1,425

2,010

3,040

3,895

Operating Profit (before amort. and except.)

166

373

587

769

1,098

Intangible Amortisation

 

 

0

(50)

(86)

0

0

Exceptionals

 

 

(54)

(7)

(67)

0

0

Other

 

 

0

0

0

0

0

Operating Profit

 

 

111

316

434

769

1,098

Net Interest

 

 

(202)

(292)

(275)

(314)

(286)

Profit Before Tax (norm)

 

 

(36)

81

312

456

812

Profit Before Tax (FRS 3)

 

 

(90)

24

159

456

812

Tax

 

 

(10)

(48)

(8)

(92)

(255)

Profit After Tax (norm)

 

 

(46)

33

304

364

557

Profit After Tax (FRS 3)

 

 

(100)

(24)

151

364

557

Average Number of Shares Outstanding (m)

 

4.16

4.93

5.99

5.99

5.99

EPS - normalised (c)

 

 

(1.11)

0.67

5.07

6.07

9.30

EPS - normalised fully diluted (c)

 

 

(1.11)

0.67

5.07

6.07

9.30

EPS - (IFRS) (c)

 

 

(2.41)

(0.49)

2.52

6.07

9.30

Dividend per share (€)

 

 

0.00

0.00

0.00

0.00

0.00

Gross Margin (%)

 

 

55.8

47.3

46.8

56.7

57.4

EBITDA Margin (%)

 

 

33.5

36.5

39.1

44.9

46.3

Operating Margin (before GW and except.) (%)

 

6.3

9.6

11.4

11.4

13.0

BALANCE SHEET

Fixed Assets

 

 

6,536

8,117

11,158

12,447

12,889

Intangible Assets

 

 

2,404

2,465

2,767

2,660

2,589

Tangible Assets

 

 

4,132

5,652

8,391

9,787

10,300

Investments

 

 

0

0

0

0

0

Current Assets

 

 

2,023

6,527

4,330

4,266

3,952

Stocks

 

 

166

814

967

986

1,006

Debtors

 

 

1,729

3,429

2,729

2,784

2,839

Cash

 

 

128

2,284

338

200

(190)

Other

 

 

0

0

296

296

296

Current Liabilities

 

 

(3,065)

(5,093)

(7,835)

(8,392)

(7,963)

Creditors

 

 

(1,384)

(3,839)

(5,034)

(5,100)

(5,161)

Short term borrowings

 

 

(1,681)

(1,254)

(2,801)

(3,292)

(2,802)

Long Term Liabilities

 

 

(4,515)

(3,911)

(3,000)

(3,304)

(3,304)

Long term borrowings

 

 

(4,368)

(3,771)

(3,000)

(3,000)

(3,000)

Other long term liabilities

 

 

(147)

(140)

0

(304)

(304)

Net Assets

 

 

979

5,640

4,653

5,016

5,574

CASH FLOW

Operating Cash Flow

 

 

1,297

1,842

2,045

3,032

3,881

Net Interest

 

 

(202)

(292)

(275)

(314)

(286)

Tax

 

 

(10)

(48)

(8)

(92)

(255)

Capex

 

 

(1,844)

(2,670)

(4,476)

(3,256)

(3,239)

Acquisitions/disposals

 

 

0

0

0

0

0

Financing

 

 

0

4,324

0

0

0

Dividends

 

 

0

0

0

0

0

Other

 

 

(29)

6

(8)

0

0

Net Cash Flow

 

 

(788)

3,162

(2,722)

(629)

101

Opening net debt/(cash)

 

 

5,152

5,921

2,741

5,463

6,092

HP finance leases initiated

 

 

0

0

0

0

0

Other

 

 

19

18

0

0

(0)

Closing net debt/(cash)

 

 

5,921

2,741

5,463

6,092

5,992

Source: Go internet and Edison Investment Research


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Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

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Level 25, Aurora Place

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NSW 2000, Australia

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Wellington 6011

New Zealand

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