A new super-fast internet services provider hit the ASX boards last week and immediately hit its straps after almost doubling in value to $1.84 from its $1 initial public offer price.
The company in question is SUPERLOOP FPO (ASX: SLC), which is run by Bevan Slattery the former chief executive and founder of established data centre and IT services business Nextdc Ltd (ASX: NXT).
Also on a heavyweight board of directors is iiNet Limited (ASX: IIN) founder and experienced telco entrepreneur Michael Malone. Slattery retains a 66.7% ownership interest in Superloop, which means his interests are heavily aligned with shareholders.
Superloop is raising equity to invest in telecommunications infrastructure primarily in Australia and Singapore. The company's key strategic assets are the exclusive rights of use to an approximately 130-kilometre fibre optic network within Sydney, Melbourne and Brisbane, while it also has rights to a 120-kilometre underground duct network in Singapore. The company also provides data centre services for the storage of information in the cloud on behalf of its business clients.
Capacity on the Superloop fibre optic cables is effectively available to rent by businesses situated in areas of urban density where the fibre optic cable networks connect to and between buildings on the Superloop ring.
The company generates revenue by renting out this high-speed and private fibre optic internet capacity alongside data centre storage capacity in the cloud. The services are typically required by businesses, wholesale carriers and global content providers for whom capacity, scalability, security and reliable connectivity are critical business requirements.
In the digital world the provision of cloud services is a growth sweet spot made all the juicer by the exponentially growing demand for data that is largely driven by the shift to video and mobile by internet users.
Part of Superloop's strategy is to focus on urban areas of interconnectivity density, which is why Singapore and Hong Kong have been earmarked as growth opportunities, alongside a more mature Australian market.
If successful in executing its business plan Superloop should have good operating leverage as fee-paying customers can be added to the networks, while the costs around operating the fibre optic cables or data centres remain relatively fixed. This gives the potential for high profit margins and scalability – a profit-spinning combination beloved of growth investors everywhere.
Given management's experience and Superloop's business plan it looks to tick the boxes as a growth prospect, although significant risks remain around a lack of customer uptake, teething problems and the competitive landscape.
Rival operators like Vocus Communications Limited (ASX: VOC) and TPG Telecom Ltd (ASX: TPM) offer similar services and Superloop has its work cut out to win market share.
The company is debt free and has nearly $22 million cash in the bank to grow its network and accelerate sales. Although its short history and limited pro forma earnings guidance mean it's hard to value and looks best kept on the watchlist until evidence of top-line growth materialises.
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