5G Networks Ltd (ASX: 5GN) is a telecommunications carrier operating across Australia, engaged in the supply of cloud-based solutions, managed services and network services.
The company is a small cap ASX share with a market capitalisation of ~$160 million. It might be on the more speculative and volatile end of town, but I believe there are many reasons why 5G Networks could be the ASX share to buy right now.
FY20 financial results
5G Networks delivered a solid FY20 performance with a focus on delivering shareholder value through its strong earnings before interest, tax, depreciation and amortisation (EBITDA) performance this year, which has grown by 96% from FY19.
Its success has been underpinned by a number of key developments, highlighted by the introduction of key strategic acquisitions and new platform capabilities. This included new data centre locations in both central Sydney and North Sydney, which has enabled greater market opportunities.
In April, the 5GN Cloud Federation was launched, which is an innovative multi-cloud platform to support the growing demand for cloud services in Australia. Demand for the platform remains strong and the organisation is now forecasting solid growth for the approaching year.
5G Network's focus for acquisitions this year has been on data centre services. After completing the Melbourne Data Centre purchase in FY19, it then acquired the Pyrmont data centre and St Leonards (both in Sydney). In July 2020, it announced the acquisition of Colocation Australia, a specialist in wholesale data centre sales which also has interstate and international network capacity.
On a broader level, Australia's demand for cloud services has been fast-tracked in 2020 with the growing impact of COVID-19. It has been well documented that the shift to the cloud is a key objective for many organisations seeking to manage their business risk and support remote work during this pandemic.
ASX shares in the cloud-solutions space such as NextDC Ltd (ASX: NXT) and Megaport Ltd (ASX: MP1) have experienced significant success this reporting season. I believe 5G Networks may be reminiscent of these large-cap providers in their early days.
FY21 guidance
5G Networks has forecasted revenue between $60 million and $65 million and EBITDA between $8 million and $8.5 million, before material acquisitions. The company has a strong cash position of $23.5 million, as at June 2020, which should allow it to pursue accretive acquisitions to increase revenue and tap into new markets.
Foolish takeaway
The 5G Networks share price ran more than 60% between 21 July and 28 July. Following the run up, the share price has consolidated around the sub $2 level. This ASX stock is in a compelling space and certainly one to watch for growth-orientated investors.
At the time of writing, the 5G Networks share price is sitting at $1.86 per share, down 1.84% for the day.
