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Source: Spirit Telecom
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  • Tech disruptor Spirit Telecom (ST1) is changing the way businesses access internet, telco and IT services, leaving traditional telco giants in the dust
  • As established telco big-caps lose revenue and slash dividends, Spirit is flourishing under astute management and a cutting-edge strategy
  • The company is working hard to acquire the right businesses, solutions and partnerships to offer a one-stop-shop telco and IT approach
  • The company’s most recent achievement has been the launch of a $23.2 million capital raise in August — a portion of which has been used to buy out three New South Wales IT companies
  • This is on top of the eight acquisitions made last financial year
  • Despite the upheaval of COVID-19, Spirit’s revenue more-than-doubled over the past financial year
  • Most importantly, Spirit now has $31 million in balance sheet capital to deploy for acquisitions and growth

Tech disruptor Spirit Telecom (ST1) is changing the way businesses access internet, telco and IT services, leaving traditional telco giants in the dust.

The company has emerged as an agile contender in the telco world, taking on established giants like Telstra and TPG, which recently completed its Vodafone merger.

Spirit has flourished under astute management and a cutting-edge strategy, unshaken by the challenges presented by the onset of COVID-19.

Spirit’s success is in its strategic thinking

Managing Director Sol Lukatsky said first and foremost, it’s about the company’s ability to acquire the right businesses, solutions and partnerships to offer a one-stop-shop approach.

Spirit offers telco, internet, cloud and IT managed services, and cybersecurity all under the same roof. This means flexible contracts with bundles of products can be tailored to the needs of small to medium enterprises (SMEs) and provided under one monthly invoice.

Vitally, this growth is also supported with access to $31 million of capital on the balance sheet to deploy for acquisitions.

Sol has made no secret of his ambition to become “the Officeworks of IT and Telco in Australia”. He said that’s about combining an extensive product range with old-fashioned service.

“We have built trust and made good decisions to provide what businesses need today,” Sol said.

“Our numbers are a reflection of the ability to bundle the products together — products customers need,” he said.

“A contact centre is not a way to sell complex products.”

And, looking at Spirit’s big-cap competitors, it would appear Sol may be right.

A David and Goliath story

For example, Telstra’s net profits dropped 14.4 per cent last year and total income slipped six per cent to $26.6 billion. Shares have trended gradually south for the past five years, from around $6 in 2015 to south of $3 a pop over the past two weeks.

Telstra is forking out a fully-franked final dividend of eight cents a share – 16 cents for the 2020 financial year. This is flat on the year before but still down on FY18’s 22-cent full-year payout.

Similarly, TPG’s half-yearly revenue for the first half of 2020 fell 11 per cent on the prior corresponding period, despite the recent major merger with Vodafone.

This financial year alone, TPG’s share price has slipped 17.64 per cent from $8.90 to $7.33 per share. The company did not pay a half-yearly dividend.

Yet, as the giants scramble to hold onto traditional revenue streams, the smaller and smarter Spirit is aggressively chipping away with its fresh approach, taking chunks of business off the table as it targets hospitals, government agencies, education facilities, and more.

It would appear the market has begun to clearly see the apparition as shares soar up towards the 40 cent mark — nearly double where they sat at the start of 2020.

Most tellingly, Spirit is seen as the natural home for the retail investors and self-managed super funds (SMSFs) moving away from the big Telcos who do not offer growth and have lowered their dividend payouts.

With the falls in dividends taking big chunks out of retirement nest eggs, the safe havens of 20 years ago no longer seem so safe — especially as every household in Australia starts to re-calibrate its thinking during the COVID pandemic.

Spirit is quickly covering ground

Spirit has been making remarkable progress in its stoush with the legacy, big-market-cap players in its field.

The company’s most recent achievement has been the launch of a $23.2 million capital raise in August.

Spirit managed to pocket $18.2 million through a share placement and raised an additional $5 million through a heavily oversubscribed share purchase plan.

For those following the Spirit story over the past year, the use of the funds is likely no surprise: Spirit has used a portion of the extra cash to buy out three New South Wales IT companies and has the capital behind it to fund additional acquisitions and organic growth initiatives, including the rollout of its national brand.

In its most transaction, Spirit has acquired Altitude IT and Beachhead Group, both based in Sydney, and Reliance Technology in Central NSW. Spirit said the buys will provide instant market expansion and a neat $12 million in combined revenue. Importantly, roughly 60 per cent of the new revenue will be recurring.

It’s yet another bold move by Spirit Telecom, which acquired eight complementary businesses last financial year and pushed deeper into Queensland and New South Wales with another significant addition — IT provider VPD Group — for $14 million on July 1. All these acquisitions have performed strongly.

Over the period, Spirit has also secured over 30 new trading partnerships as it builds out its wholesale distribution network, Spirit Solution Partners.

On top of all this, the company has developed the Spirit X sales platform, which acts as an aggregator of business-to-business (B2B) internet products.

The money where Spirit’s mouth is

Despite the upheaval of COVID-19, Spirit’s revenue more-than-doubled over the past financial year — increasing by 14 per cent to $11.9 million in the final quarter alone, compared to the quarter before. More than half of the secured revenue will be recurring.

Supporting the revenue growth was an 88 per cent increase in normalised full-year earnings before interest, tax, depreciation, and amortisation (EBITDA) compared to the 2019 financial year.

Most importantly, Spirit now has $31 million in balance sheet capital to deploy for acquisitions and growth.

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