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Small-cap ASX telco rockets 23% higher on strong sales momentum

The Superloop Ltd (ASX: SLC) share price is rocketing higher today, up as much as 22.56% to an intra-day high of $1.195 per share. This surge is on the back of a trading update released to the market this morning, in which Superloop detailed strong sales momentum and affirmed FY20 guidance.

About Superloop

Superloop operates in the telecommunications space, providing independent connectivity services designing, constructing and operating networks in the Asia Pacific region.

The company owns and operates around 900 kilometres of carrier-grade metropolitan fibre networks in Australia, Singapore, and Hong Kong, connecting key data centres and commercial buildings.

Superloop’s customer base includes leading multinational companies like Morgan Stanley, Citibank, eBay and Cisco.

Q3 trading update

Superloop announced strong third-quarter core fibre connectivity sales, which included multiple high-capacity services contracted on its Indigo cable system. The company also highlighted an uptick in demand for its cybersecurity services as education providers turn to remote learning solutions amid COVID-19.

Third-quarter connectivity sales totalled $5.6 million on an annualised basis, a strong result compared to the $7.8 million recorded in the first half of FY20. The company also continues to see improvements in its book-to-bill cycle due to greater focus on “on-net” services, which allow Superloop to deliver and invoice services quicker.

In addition, Superloop has been experiencing a significant rise in demand for its Internet/IP network over the last few months. This has been driven by the changing traffic profile and volume in response to the shift towards work from home arrangements, video conferencing, and streaming services. As a result, Superloop experienced more than 30% growth in traffic across its global network within a matter of weeks.

The company noted there is still significant spare capacity on most of its international routes, providing further room for it to grow this business segment without a meaningful increase to costs.

FY20 guidance

Due to its strong third-quarter result and the initiatives undertaken by its cost-saving program ‘Project Vulcan’, Superloop is in an operating cash flow positive position and continues to operate comfortably within its debt facility headroom.

The company previously downgraded its earnings guidance upon announcing its first-half FY20 results back in February. Due to the downside risk of COVID-19, Superloop revised its earnings before interest, tax, depreciation and amortisation guidance to $12 million to $15 million for the full year. This morning, Superloop confirmed it is tracking towards the midpoint of this guidance.

Today’s update was certainly well received by the market, causing Superloop shares to open 12.82% higher. At the time of writing, the Superloop share price is sitting 17.95% higher for the day at $1.15.

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Cathryn Goh has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of SUPERLOOP FPO. 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 Scott Phillips.