Premier telecommunications company and Internet service provider (ISP), DataPro - which is to list on AltX on 18 October - released the results of its private placement today, which by all standards appears to have been an emphatic success.
James Herbst, the director responsible for corporate finance, said: "Of the 18 497 204 ordinary shares available in terms of the private placement, subscriptions were received for 46 092 600 shares, resulting in an over-subscription rate of 2.49 times."
Herbst believes DataPro could not have chosen a better time to list as a telecommunications company. He points out that the business raised capital at a forward price:earnings multiple of eight times. "Standard Bank, which has been around for decades, is trading on a forward PE of eight. This provides some indication of the appetite for risk in this market."
Herbst believes the investment case for DataPro is fourfold. He says: "While a valuation can be derived for DataPro as an independent business relative to other companies listed on the JSE and more specifically industry players, other valuation principles seem to dominate."
Herbst comments: "Deregulation in the telecommunications industry prompts the question, with a market that has increased 30-fold because of deregulation, which companies have the right platform with the right people who are quick and innovative enough to operate as one of the major competitors to Telkom?"
In this regard, he feels DataPro is a good company to pick.
"DataPro has a world-class infrastructure, is cash generative and earnings positive and has reached critical mass. More importantly, we have a great team of people - the right people are in the right seats on the bus. This provides the perfect platform for gaining significant market share post-deregulation," he says.
With about nine current players having critical mass, Herbst believes valuations will be driven by supply and demand, and not purely valuation relatives.
A further investment case is made when looking at the strategic value of DataPro to the existing market players. Herbst believes that if one of the opposition were to acquire DataPro, a substantial portion of the annuity revenue would drop to the bottom line. Herbst is not quite sure how much of DataPro`s forecast R113 million to August 2005 could drop to the competitor`s bottom line, but he says: "One thing is for sure, it would be substantially greater than what we forecast we could deliver.
"Our goal is to become the AltX star, an alternative telecoms stock and a very exciting growth stock."
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