Could this small cap ASX telco become the next Telstra (ASX:TLS) share price? 

Could the growth and scale from Spirit Telecom Ltd (ASX: ST1) make it the next Telstra Corporation Ltd (ASX: TLS) share price?

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Spirit Telecom Ltd (ASX: ST1) is a telecommunications company which provides internet, cloud solutions, telephony services and phone names in Australia. The company has a market capitalisation of just $200 million but is making headway in revenues and scale. With the Spirit Telecom share price up more than 85% this year, could it become the next Telstra Corporation Ltd (ASX: TLS) share price?

About Spirit Telecom 

Spirit is a disruptor in the IT&T industry. It developed its own advanced, fixed wireless network which means it can provide Australian small to medium-sized businesses (SMBs) with 'Sky-Speed' internet, along with managed IT services and cloud-based business solutions. It is rated as Australia's fastest internet service provider with symmetrical internet speeds ranging from 25 Mbps to a whopping 1Gbps. 

Q1 FY21 update 

On Tuesday, Spirit provided an upbeat business update for Q1 FY21. The business highlighted record growth and scale with total revenue at $15.6 million, up 149% year on year and 30% on Q4 20. The company has a balance sheet of $30.1 million of cash and available debt as of 30 September. Its flexible balance sheet position has allowed the company to build its acquisition pipeline with multiple targets currently under consideration and due diligence. 

The company has a number of growth initiatives coming in Q2 and Q3 including: 

  • 70+ new resellers signed nationally 
  • New Spirit branded mobile products and bundles to be launched nationally across Q2 to Q3
  • Federal government budget tax incentives for businesses refreshing IT&T needs 
  • NBN enterprise ethernet promotions 
  • Acquisition opportunities 

The company currently has a revenue run rate of circa $80 million and is targeting circa +$85 million revenue run rate by the end of CY2020. 

The next Telstra share price? 

Spirit and Telstra are very different companies despite operating in the same sector. Telstra is a mature company but has struggled to deliver shareholder value in recent times. I believe there is little value in the Telstra share price from defensive, growth and yield perspectives. I feel there are far better ASX shares out that can more reliably deliver these benefits. 

The size and loss making nature of Spirit does make it a more risky investment than the likes of ASX 200 companies. However, the company is trading at a cheap revenue multiple with a strong balance sheet and business tailwinds to propel its earnings. I believe the company could be suitable for investors focusing on growth and capital gains, and the Spirit share price represents good value at today's prices.  

Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra 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.

More on ⏸️ Shares to Watch

asx share price rebound represented by wooden blocks spelling rebound with coins on top
⏸️ Shares to Watch

Could the Zip (ASX:Z1P) share price make a comeback in 2021? 

The Zip (ASX: Z1P) share price struggled to outperform in the second half of 2020. Could 2021 be a better…

Read more »

⏸️ Shares to Watch

What next for the a2 Milk (ASX:A2M) share price?

Could you call the A2 Milk Company Ltd (ASX: A2M) share price a cheap growth stock after it slumped to…

Read more »

⏸️ Shares to Watch

What's in store for the Afterpay (ASX:APT) share price in 2021? 

The Afterpay (ASX: APT) share price has surged more than 275% in 2020. Here's a little of what investors can…

Read more »

wondering about asx share price represented by man surrounded by question marks
⏸️ Shares to Watch

Is the Zip (ASX:Z1P) share price a buy yet?

The Zip Co Ltd (ASX: Z1P) share price continues to underperform despite an exciting capital raising. Could it finally be…

Read more »

questioning whether asx share price is a buy represented by man in red shirt scratching his head
⏸️ Shares to Watch

Should you buy the Appen (ASX:APX) share price dip?

Could the Appen Ltd (ASX: APX) share price be a buying opportunity after its recent selloff? We take a look…

Read more »

Share Fallers

Why this broker thinks it's time to buy Qantas (ASX:QAN) shares

As state borders re-open to domestic tourism, this broker thinks it could be time to start buying Qantas Airways Limited…

Read more »

wondering about asx share price represented by man surrounded by question marks
⏸️ Shares to Watch

Could this be why the Zip (ASX:Z1P) share price is underperforming?

Could this be why the Zip Co Ltd (ASX: Z1P) share price is down 50% from its August highs and…

Read more »

Hands grabbing for high rung on a ladder pointing to the sky
⏸️ Shares to Watch

The Rhipe (ASX:RHP) share price has jumped 8% today. Here's why.

The Rhipe Ltd (ASX: RHP) share price has popped 8.59% after announcing its first quarter FY21 update. Here's the run…

Read more »