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Why Spirit Telecom Ltd shares lifted on its profit report

This morning junior telco Spirit Telecom Ltd (ASX: ST1) reported a net profit of $0.6 million on revenue of $16.2 million for the financial year ending June 30, 2018. The profit and revenue were up 22% and 41% over the prior corresponding period.

The net profit translated in 0.26 cents of earnings per share over the period, with the group declining to declare a dividend.

Spirit also reported an underlying EBITDA (operating income total that excludes acquisition related costs) of $3 million, which is an amount almost 50% above the prior corresponding period. The group had a net cash position of $4.6 million at the end of the financial year after raising around $7.6 million from the issue of new shares over the year.

Spirit describes itself as a wireless alternative to the national broadband network (nbn) in delivering “super fast broadband” to residential apartment blocks or business customers. It reports that this business plan has helped it now record 12 consecutive quarters of organic revenue growth as new clients sign up to its unlimited data plans alongside what it calls flexible contract options.

Over the year the group invested $2.7 million in network expansions and upgrades, with a total of 510 buildings now on-net.

Investors appeared to like the result sending the stock up 2.6% to 20 cents today, with the group’s tiny market cap of not much more than $50 million meaning this is still a speculative business that could offer investors big upside or downside from here.

Spirit remains vulnerable to technological disruption itself, while there’s also the prospect of the government writing down the value of the nbn which may allow the nbn to drop charges in a move that could make Spirit’s ‘nbn alternative’ business plan less attractive.

Management declined to provide any specific profit or sales guidance for the year ahead, although shareholders should expect more investment in growth via network expansion.

Other innovative junior internet service providers to watch include MNF Group Ltd (ASX: MNF) and Over The Wire Holdings Ltd (ASX: OTW).

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Motley Fool contributor Tom Richardson owns shares of MNF Group Limited. The Motley Fool Australia owns shares of and has recommended MNF Group Limited. 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 Scott Phillips.

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