South African telecommunications company and Internet service provider, DataPro Pty. Ltd.- which is to list on Altx on October 18th - released the results of its private placement today. Says James Herbst, the director responsible for corporate finance: "Of the 18 497 204 ordinary shares available in terms of the private placement, subscriptions were received for 46 092 600 shares, resulting in an over-subscription rate of 2.49 times."
Herbst believes that DataPro could not have chosen a better time to list as a telecommunications company. He points out that the business raised capital at a forward price:earnings multiple of eight times. "Standard Bank, which has been around for decades, is trading on a forward PE of eight. This provides some indication of the appetite for risk in this market."
Herbst believes the investment case for DataPro is four-fold. He says that "While a valuation can be derived for DataPro as an independent business relative to other companies listed on the JSE, and, more specifically, industry players, other valuation principles seem to dominate."
Herbst comments that "deregulation in the telecommunications industry prompts the question, with a market that has increased 30-fold because of deregulation, 'Which companies have the right platform with the right people, who are quick and innovative enough to operate as one of the major competitors to Telkom (SA Ltd.)?'"
"DataPro has a world-class infrastructure, is cash-generative and earnings-positive, and has reached critical mass. More importantly, we have a great team of people - the right people are in the right seats on the bus. This provides the perfect platform for gaining significant market share post deregulation," he says. With about nine current players having critical mass, Herbst believes valuation will be driven by supply and demand, and not purely valuation relatives.
A further investment case is made when looking at the strategic value of DataPro to the existing market players. Herbst believes that if one of the opposition were to acquire DataPro, a substantial portion of the annuity revenue would drop to the bottom line. Herbst is not quite sure how much of DataPro's forecast R113m (US$17.2 million) to August 2005 could drop to the competitor's bottom line, but, he says, "One thing is for sure, it would be substantially greater than what we forecast we could deliver. Our goal is to become the AltX star, an alternative telecoms stock, and a very exciting growth stock."