BGL - BigAir Group

[FrontRunner]

actually they just announced this:

"Response to speculation in the media

BigAir Group Limited (“BigAir”) takes note of the “Vocus has BigAir in its sights” article published in the Australian Financial Review on 14 June 2011.

BigAir confirms that it has to date not received a formal offer or takeover proposal. BigAir will keep its shareholders informed as and when developments occur."

 

[McLovin]

Is there any real moat around BGL's business? The cost of building a network is quite small. 20 odd base-stations at $100k each and they have Sydney covered. It doesn't seem like something incredibly difficult to replicate. IMO this is a classic case of a company that will see any competitive advantage eaten away as it grows to any sort of size.

Will Telstra's 4G network be a competitive threat to BGL, or are they targeting two different segments (mobile v fixed wifi).

 

[Intrinsic Value]

Very interesting article in todays SMH about BGL.

The share price has risen over 50 percent since I first looked at it a month or so ago.

Over on RMs blog there are a couple of bloggers very keen on it.

IV for next year of 40c currently trading at 31.5cents. Good management team and good track record with other businesses. Very small cap stock only 45m but with plenty of potential.

 

[InvisbleInvestor]

Very interesting article in todays SMH about BGL.

The share price has risen over 50 percent since I first looked at it a month or so ago.

Over on RMs blog there are a couple of bloggers very keen on it.

IV for next year of 40c currently trading at 31.5cents. Good management team and good track record with other businesses. Very small cap stock only 45m but with plenty of potential.

Agreed. Too bad the MOS has been gobbled up by the fact the value has caught up with the price in such a short time.

 

[Intrinsic Value]

Agreed. Too bad the MOS has been gobbled up by the fact the value has caught up with the price in such a short time.

Up nearly 10 percent this morning presumably off the back of the SMH article.

 

[VSntchr]

BGL dropping quite heavily this week. These illiquid stocks are so volatile, any articles or reports out that could be causing the move?

 

[robusta]

BGL dropping quite heavily this week. These illiquid stocks are so volatile, any articles or reports out that could be causing the move?

No idea but BGL definately on my watch list

 

[zac]

While they certainly have dropped in price; from my calculations they are still trading well above their value.
I have them valued under 20 cents.

Also who are their main competitors?

 

[VSntchr]

While they certainly have dropped in price; from my calculations they are still trading well above their value.
I have them valued under 20 cents.

Also who are their main competitors?

They operate fixed wireless networks, Id be very careful that Telstra doesnt become a major competitor...thats what has kept me out thus far..

As for value..I think its worth closer to 30c than 20c...rising fast too.

 

[Intrinsic Value]

They operate fixed wireless networks, Id be very careful that Telstra doesnt become a major competitor...thats what has kept me out thus far..

As for value..I think its worth closer to 30c than 20c...rising fast too.

RM put out his valuation on his blog for BGL for 2012 at 37c.

It has been touted that more likely BGL is a take over target for the likes of Vocus.

 

[ROE]

Telstra post NBN will be very heavy on wireless and they already has
the best wireless network ..

with the money coming in from NBN payment they can invest a billion or so
and build un-rival wireless network and rival to NBN offering ...

basing valuation on return on equity on these business is risky
as the future return on equity is not certain .

Invest with care

 

[McLovin]

They operate fixed wireless networks, Id be very careful that Telstra doesnt become a major competitor...thats what has kept me out thus far..

Telstra could trample all over BGL without even knowing. This is a tiny company, with easily assets that are easily replicated. I believe their ROE is a function of their size, not a competitive advantage.

 

[BigLeon]

Hey guys

Just wanted to highlight a couple of the reasons why I don't believe Telstra is a threat to BGL's niche.

1. While Wimax is a wirelessly delivered technology, it is designed for fixed connections rather than mobile. 4G/LTE is for mobile users, and even at peak download rates of 100-150mbps downstream, Bigair can do 1gbps symmetrical as a business-grade service. (BGL is business customers only, and sells almost solely through the wholesale channel)

2. There is more money in mobile compared to Wimax but a much bigger investment is required. Telstra are better off pumping the money into their mobile network (one of the reasons they are rolling out LTE is to take load off Next G).

Happy to answer any questions about Bigair's place in the Business Telecoms market.

 

[McLovin]

Hey guys

Just wanted to highlight a couple of the reasons why I don't believe Telstra is a threat to BGL's niche.

1. While Wimax is a wirelessly delivered technology, it is designed for fixed connections rather than mobile. 4G/LTE is for mobile users, and even at peak download rates of 100-150mbps downstream, Bigair can do 1gbps symmetrical as a business-grade service. (BGL is business customers only, and sells almost solely through the wholesale channel)

Isn't it being sold as a redundancy service rather than a primary internet connection? My question would be if it is a redundancy service how many businesses, without their own dedicated T1 line, would require 1gb up/down speed in an emergency? Further to that question, what happens if the network in say the CBD goes down, surely BGL's service will also go down, wouldn't it?

If they are planning on creating an alternative everyday network, what are the spectrum/bandwidth limitations? By that I mean how much can you physically transmit over a given amount of spectrum and how much spectrum is available or will become available (I think I read somewhere that analog TV spectrum will become available once it's switched off).

Finally, is it possible that Telstra/Optus/the other guy (Vodafone) could at some point begin building WiMax networks in the CBD's of the capital cities to handle some of the traffic from their 4G network? I know at the moment smartphones aren't equipped for WiMax but surely within 18 months this will be standard, given the lower capital cost of building WiMax networks.

It's an interesting sector and one I try and follow. To me though, technology is changing too fast to be able to make sense of where it will be in 2/5/10 years. The only thing that I do know for sure is that the amount of data transferred will continue to grow exponentially and that cable will remain the primary method for transporting that data, with the exception of the last mile.

 

[BigLeon]

Isn't it being sold as a redundancy service rather than a primary internet connection? My question would be if it is a redundancy service how many businesses, without their own dedicated T1 line, would require 1gb up/down speed in an emergency? Further to that question, what happens if the network in say the CBD goes down, surely BGL's service will also go down, wouldn't it?

It can be used as a primary, not just for internet but VPN as well and it does QoS (prioritisation of traffic for business applications, video, voice etc). In terms of a network going down, it all depends on where Bigair is getting their backhaul transmission. In major disaster scenarios the main issue is power rather than network survivability, as in CBD areas you will have 6 or more different fibre networks operated by different carriers (just look at the footpath in major cities, the plates designate pits owned by Telstra, Optus, Uecomm, AAPT, Pipe, etc). A business buying BigAir services for network survivability would ensure their fibre connection was carried on a different transmission network to Bigair. Of course, when it comes to access network, you can put a backhoe through the building's fibre conduit and their Wimax service will continue to operate. And nobody uses E1's any more for data, it's all about IP with MPLS core

If they are planning on creating an alternative everyday network, what are the spectrum/bandwidth limitations? By that I mean how much can you physically transmit over a given amount of spectrum and how much spectrum is available or will become available (I think I read somewhere that analog TV spectrum will become available once it's switched off).

Every spectrum has limitations, according to BigAir's FAQ their spectrum is 30-50 times that available for the mobile networks. This indicates to me if they run out of spectrum this will be a good problem to have. I don't know what the spectrum availability is for the frequencies they use but if it's full IEEE will likely designate other spectrum bands for Wimax in the future.

It is likely that the 700MHz analogue spectrum will be recycled for LTE (Optus is testing LTE on 700 now).

Finally, is it possible that Telstra/Optus/the other guy (Vodafone) could at some point begin building WiMax networks in the CBD's of the capital cities to handle some of the traffic from their 4G network? I know at the moment smartphones aren't equipped for WiMax but surely within 18 months this will be standard, given the lower capital cost of building WiMax networks.

Wimax isn't really a mobile-friendly service, it is more to deliver fixed connections as line of sight is generally required and as far as I know cell handoffs don't really work (also, to guarantee service you would need to control who connects to which towers). It would make sense for carriers to continue investing in 4G, and building a Wimax network to target the current business market of $15m doesn't sound like a very focused investment

It's an interesting sector and one I try and follow. To me though, technology is changing too fast to be able to make sense of where it will be in 2/5/10 years. The only thing that I do know for sure is that the amount of data transferred will continue to grow exponentially and that cable will remain the primary method for transporting that data, with the exception of the last mile.

Agreed, Wimax is a last mile technology which services the gaps fibre has as an access network:
Expensive = $20k+ for a leadin generally and $100+ per metre
Susceptible to backhoes etc
Weeks vs Hours to deliver

 

[McLovin]

Thanks BigLeon.

From reading what you wrote I'm still slightly confused as to what their competitive advantage is. They're essentially providing what is currently provided by cable through microwave. As long as they stay relatively small it's unlikely the big boys will bother competing (as I said in an earlier post, I think their RoE is due to their size not a moat). But how scaleable is the business? If their model is significantly less CAPEX intensive than cabling the last mile and data integrity/speed is as safe then surely competition will eat away at their business if it becomes successful, they are afterall providing a commodity.

 

[BigLeon]

Thanks BigLeon.

From reading what you wrote I'm still slightly confused as to what their competitive advantage is. They're essentially providing what is currently provided by cable through microwave. As long as they stay relatively small it's unlikely the big boys will bother competing (as I said in an earlier post, I think their RoE is due to their size not a moat). But how scaleable is the business? If their model is significantly less CAPEX intensive than cabling the last mile and data integrity/speed is as safe then surely competition will eat away at their business if it becomes successful, they are afterall providing a commodity.

I guess time will tell whether BGL faces serious competition in the future, but the barrier to entry for another provider to compete with them looks too risky for me - with an existing supplier doing a decent job, if I was a telco startup I'd become an NBN RSP and building value-added media/application services to differentiate. A base station costs about $250k.

They may be providing a commodity in wireless access network however in a commodity market the lowest price operator wins. Since CVA were merged into BGL an equivalent national wimax operator is yet to emerge.

I think given BGL's 50%+ revenue CAGR their growth isn't showing immediate signs of slowing, the beauty of telecoms industry is once you pay for your big fixed cost base everything else is money for jam - you can selectively invest where you see profit opportunity. Even if they didn't turn on a single new customer from today you have a business returning $850k EBITDA every month ($10.2m per annum)... for $45m with no debt.

I am a true believer, but time will tell whether I am mistaken

 

[BigLeon]

I guess time will tell whether BGL faces serious competition in the future, but the barrier to entry for another provider to compete with them looks too risky for me - with an existing supplier doing a decent job, if I was a telco startup I'd become an NBN RSP and building value-added media/application services to differentiate. A base station costs about $250k.

They may be providing a commodity in wireless access network however in a commodity market the lowest price operator wins. Since CVA were merged into BGL an equivalent national wimax operator is yet to emerge.

I think given BGL's 50%+ revenue CAGR their growth isn't showing immediate signs of slowing, the beauty of telecoms industry is once you pay for your big fixed cost base everything else is money for jam - you can selectively invest where you see profit opportunity. Even if they didn't turn on a single new customer from today you have a business returning $850k EBITDA every month ($10.2m per annum)... for $45m with no debt.

I am a true believer, but time will tell whether I am mistaken

Excellent result today, while capex is peaking the business is still roaring ahead at the speed of electromagnetic wave propagation in free space

Link to my analysis here

I'm anticipating a full year EBITDA of $10.5M-$11M, given their current run rate, future synergies, and HY12's result of $4.57M Forecast of $9M? They'll smash that

Tracking well for maiden dividend

 

[Intrinsic Value]

Excellent result today, while capex is peaking the business is still roaring ahead at the speed of electromagnetic wave propagation in free space

Link to my analysis here

I'm anticipating a full year EBITDA of $10.5M-$11M, given their current run rate, future synergies, and HY12's result of $4.57M Forecast of $9M? They'll smash that

Tracking well for maiden dividend

Good to see. I got in at 30cents awhile back and am happy to hold. This looks like it is going to go very well.

 

[Intrinsic Value]

BGL tracking very nicely indeed.

Small dividend being paid.

Share price up a bit as well.

The best performer of my portfolio over the last year.

Bought in at just under 30c and now sitting just under 50c.