Why the Spirit Telecom Ltd share price is ripping higher today

The Spirit Telecom Ltd (ASX: ST1) share price has risen 9% to $0.255 this morning following yesterday’s results. Revenues rose 53% to $8 million, and underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) rose 117% to $1.5 million. Net profit after tax rose 304% to $0.24 million. Earnings per share were 0.12 cents per share and Spirit did not pay a dividend.

Spirit grew its number of connected apartments by 10% during the half, with over 21,000 apartments now connected. Currently, 60% of Spirit’s residential customers get download speeds faster than 25Mbps, compared to 16% of NBN users. Apartment growth and faster speeds together are a sign that Spirit’s proposition is gaining traction.

Apartment penetration also grew to 19% during the half, suggesting that more customers in connected apartments are signing up to use Spirit’s services. This is an important metric because once a building is connected to Spirit’s network, it requires relatively little extra cost to add customers – so the overall network becomes more profitable and more of the revenue drops through to the bottom line as profit.

Management stated they were pleased with Spirit’s progress and that they continue to work on new product developments and more channels to market, which should be coming to fruition in the near future.

For the second half, Spirit reiterated its positive outlook and “anticipates continued half-on-half growth in overall revenues.” Spirit has $3.4 million cash in the bank, $5.7 million debt, and generated positive operating cash flow of $0.7 million during the half, so the business appears sustainable. However, if management wishes to make further acquisitions or expand aggressively, the company may need to borrow more or raise capital.

Spirit is an interesting company with an attractive business proposition and I think it is worthy of closer investigation.

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Motley Fool contributor Sean O'Neill has no position in any of the stocks mentioned. The Motley Fool Australia has recommended SPIRIT TC FPO. 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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