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3 tech stocks on my watchlist

Following a period of numerous mergers and acquisitions in the telecommunications space in Australia, investors have been left with little choice outside the super-large telcos, which aren’t that appealing on valuation.

But while those mergers and acquisitions were going through, a range of small companies have arrived on the ASX over the past 18 months or so.

What makes them so attractive is their potential for rampant revenue and earnings growth given the huge tailwinds of internet data (see chart below), as well as the likelihood that at some stage they will be picked off by the larger telcos at a premium to their prevailing share price.

Cisco Global IP Traffic forecast

Here are three telcos I’ve got my eye on…

Superloop Ltd (ASX: SLC)

Superloop owns a number of dark fibre networks in Australia, connecting critical data centres in a number of capital cities. The company also operates cable networks in Singapore and is currently building one in Hong Kong with completion expected by the end of this year. Superloop recently reported that it had achieved $10 million of annualised contracted revenue and although not yet profitable, the company says it is focused on ‘achieving EBITDA breakeven as quickly as possible‘.

Superloop Sydney network

Source: Superloop

Speedcast International Ltd (ASX: SDA)

Speedcast provides satellite internet access to thousands of customers across several industries where fibre, cable or other technologies are simply impossible or impractical. That includes ships at sea, mining teams far from civilisation, small islands, defence and oil rigs. The company is growing both organically and via acquisition and although the current price is not cheap – it has pulled back a long way from the high of $5.19 it hit in October 2015 to $3.66 currently.

Speedcast customers

Source: Speedcast Prospectus

Over the Wire Holdings Ltd (ASX: OTW)

As I outlined last month, Over the Wire runs a number of IT infrastructure assets including data centres and a voice and data network. Those assets would fit perfectly into larger data centre and fibre network operators like Nextdc Ltd (ASX: NXT) or Macquarie Telecom Group Ltd (ASX: MAQ) thanks to economies of scale. While the share price has soared from listing of $1.00 to $2.30 currently, Over the Wire is definitely on my watchlist.

 

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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