CDR - Commander Communications

heck, i was even going to sell it over the last 2 days,...then trading halt!



Trading halt unsettles Commander investors
Stuart Washington
June 28, 2007


INVESTORS in Commander Communications are bracing for a second profit downgrade after the stock went into a trading halt yesterday.

The announcement of a trading halt follows a profit downgrade in May from initial forecasts of between $95 million and $101 million to as low as $64 million, including a one-off $16 million restructuring bill.

At the time Commander blamed slow progress and disruptions from the switch of its sales force from a direct model to a franchise model, with the full effect of the changes unlikely to be felt until September 2008.

The restructuring costs were also attributed to the integration of its Volante acquisition, bought for $147 million in a hostile takeover last year.

Industry sources speculated yesterday that Volante's inclusion, which allowed Commander to go beyond selling businesses telephone capacity and equipment to offering sophisticated telephone systems and other IT services to small- to medium-sized businesses, was not progressing as well as Commander had hoped.

In February Commander reported a $5.6 million loss for the first half.

Yesterday's trading halt renews speculation about Commander as a takeover target, after its shares slumped from $2.02 before the May announcement to $1.52 when trading in the shares stopped, representing a fall of 25 per cent.

Speculation about a likely takeover has been fuelled by Perpetual increasing its stake to 12 per cent.

The business is seen as most attractive to AAPT, which recently completed its $320 million takeover of PowerTel. Telstra and Optus could also be potential suitors.

The Commander business would be a neat fit with a network owner that was seeking more traffic, with the enlarged AAPT fitting the bill most closely.

I am having a punt it will be good news for holders.

Only because I noticed an spike in price before trading halt. I bought in at 1.44 and saw it go to 1.42 then all of a sudden it jumped to the 1.50 ish and then the trading halt. I suspect some insiders getting in before the ann. Just my guess. Find out tomorrow I suppose.

I was wrong, The Age online:

"Business telecommunications company Commander Communications Ltd has revised its earnings downwards to $65 million from $95 million for the 2007 financial year due to delays to the launch of its franchise project."

bumble_boo_bum said:

I was wrong, The Age online:

"Business telecommunications company Commander Communications Ltd has revised its earnings downwards to $65 million from $95 million for the 2007 financial year due to delays to the launch of its franchise project."

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At the risk of being labelled a down ramper, i am in this industry and have to say that whilst Commander have a good data base of clients they have not got the right people for their franchises. Commanders product suite (Nortel etc) are aimed at the medium to large business area however the franchises have no skill sets to sell the technology at that level as most are retirees trying to buy a glorified Telstra shop. I briefly considered buying a franchise however they are going small not large which is a negative in my view. Watch their turnover shrink even further after the franchisees come online.

In addition, at corporate level Commander have lost a lot of their account managers as they have seen sales and revenues decreasing and could see no remedy in the short to mid term future ergo commissions decreasing, so Commanders sales at the corporate level are shrinking also.

Commanders strength was built on their access to Telstra customers via a direct link to the Telstra sales force. This was lost when RSL Com obtained a piece of them. Telstra cut ties with them at that time and their sales have been in decline since that time some 4-6 years ago. Commander have yet to identify the means to obtain new customers as opposed to selling into their own data base which is constantly shrinking as not enough new customers are being found to fill the void caused by natural attrition.

This isnt to say they cannot improve however it takes time to change anything or train anybody if they can hire them.

They do have access to a great carrier grade product (IMS) which will assist them however that is at least 6-12 months away. This product lets them provide a managed service type arrangement where the customers rent IP telephones and software licencing only whilst all hardware resides at the carriers end on a monthly rental basis thus providing relatively inexpensive access to high level IP technologies for the customer and a constantly ticking metre for Commander with minimal labour requirements. That relies on either RSL Com or another allegiance to someone like AAPT though.

Happy to discuss further

Only my opinion.

opened at 1.19
the market has spoken.

i'm definitely going to sell this, and incur the $8000 loss.

fed up with tech stocks.

quarky said:

opened at 1.19
the market has spoken.

i'm definitely going to sell this, and incur the $8000 loss.

fed up with tech stocks.

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Hi Q, I know how you feel when things go from bad to worse, but I hope you held on a bit longer with CDR ............ Looks to have found a bottom now (Contararians should like the chart ), and the thing that gets me interested the most is, everyone of the top 5 shareholders has increased their holdings over the last 2 months AMP and Perpetual own 25% of CDR between them ............. Perpetual topped up again on 20-07-07 ................ Certainly looking more promising .......... I topped up today based on Perpetual doing the same ......... Cheers.

Not looking pretty. Still what brought this to my attention is the BUY reco. from Westpac. Valuation at $1.65. So probably very cheap at these levels. I love bottom fishing, but it will need to show some form of reversal before I contemplate entering. Key resistance dating back from the float at around $0.95.

These guys popped up for me purely because they were trading below asset value. But in checking their balance sheet they have a large intangible component. Any idea what this is?

Take this out and they become much less interesting..

Ouch... this has definetly fallin a fair bit, and may have a bit to go chart wise.

First Support down at 76c, then 64c and third weak support maybe at 56.5c

But hope I'm wrong if your holding down, and hope the dow bounces removing global market preasure adding the the trend change.

Cheers
SevenFX

pch said:

These guys popped up for me purely because they were trading below asset value. But in checking their balance sheet they have a large intangible component. Any idea what this is?

Take this out and they become much less interesting..

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This business isn't great ... crab ROE/ROC and profit margin .. I will pick up if it trades below 70 cents and Volante IT division going to cause a lot of head aches for them not this year but maybe next several years... I know Volante very well in IT industry. so I stay the hell out until trades real cheap or it show sign it can mange Volante reputation and pickup good customers and work force.

pch said:

These guys popped up for me purely because they were trading below asset value. But in checking their balance sheet they have a large intangible component. Any idea what this is?

Take this out and they become much less interesting..

Click to expand...

I'm sticking to my earlier post and pickup CDR now as it trades under 70 cents
it's definitely now below book value at 0.69 cents
that put the company market cap at 157-158 Million

I reckon net asset for this guy minus intangible is around 180-200mil
someone may make a bid for this guy soon at this price
TLS, Optus, AAPT?

ROE said:

I'm sticking to my earlier post and pickup CDR now as it trades under 70 cents
it's definitely now below book value at 0.69 cents
that put the company market cap at 157-158 Million

I reckon net asset for this guy minus intangible is around 180-200mil
someone may make a bid for this guy soon at this price
TLS, Optus, AAPT?

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ROE
My question here would be that do you think that the book value for CDR is indicative of what the market is willing to pay for it? I.e. would there be a willing buyer at book value - because the answer is not necessarily yes.

All I can say is that CDR is in deep deep do do...... PPT are unloading at these low levels, so clearly it looks like there isn't much support for them ATM.

Cheers
Reece

reece55 said:

ROE
My question here would be that do you think that the book value for CDR is indicative of what the market is willing to pay for it? I.e. would there be a willing buyer at book value - because the answer is not necessarily yes.

All I can say is that CDR is in deep deep do do...... PPT are unloading at these low levels, so clearly it looks like there isn't much support for them ATM.

Cheers
Reece

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I dont really care who is buying and selling I just buy what I think is right.
and I assume you buy what you think is right for you..

All the big institution buy and trades share every day sometimes they got it right some times they got it wrong.

I buy RHG recently when all the institution cant wait to get rid of it and sold out when everyone is coming back in namely PPT if you want to know.

ROE said:

I dont really care who is buying and selling I just buy what I think is right.
and I assume you buy what you think is right for you..

All the big institution buy and trades share every day sometimes they got it right some times they got it wrong.

I buy RHG recently when all the institution cant wait to get rid of it and sold out when everyone is coming back in namely PPT if you want to know.

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True ROE, the instos don't always get it right......

But a stock that halves in less than 1.5 months is a short candidate, not a long candidate....

The capitulation has been spectacular - now 68 cents, 27 June it was 1.52............ ouch.........

Can anyone shed any light on what's going on here, because I appreciate that the integration of Volante hasn't gone as well as anticipated. But this kind of a sell off leads me to think they are going bankrupt.......

Cheers

CDR price may suggest its going bankrupt but this is a contrarians dream......you've just got to love a sound business which get itself into all the wrong media and the bad books of the 'professionals'.....even the conservative estimates have CDR at 65 mil EBITA next year and a break evenish NPAT......obviously they screwed up but much cash is still flowing on the ground and the 'write offs' are just funny money (intagibles)..........for the record, punters paid $2 for CDR stock issued to pay for Volante.....that's where the losers are...just another waste of money acquisition.....as for peole entering at .63 cents, the question is whether your an investor and trader cause this business is worth a lot more than that but as long as they keep printing the newspaper headlines this baby aint getting beamed up quickly

SevenFX said:

First Support down at 76c, then 64c and third weak support maybe at 56.5c

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So doesn't look like the previous support held up, with a last support being 56.5c, but don't know where to from there as there is no historical support beyond 6years 9months.????

SevenFX

Rainmaker2000 said:

CDR price may suggest its going bankrupt but this is a contrarians dream......you've just got to love a sound business which get itself into all the wrong media and the bad books of the 'professionals'.....even the conservative estimates have CDR at 65 mil EBITA next year and a break evenish NPAT......obviously they screwed up but much cash is still flowing on the ground and the 'write offs' are just funny money (intagibles)..........for the record, punters paid $2 for CDR stock issued to pay for Volante.....that's where the losers are...just another waste of money acquisition.....as for peole entering at .63 cents, the question is whether your an investor and trader cause this business is worth a lot more than that but as long as they keep printing the newspaper headlines this baby aint getting beamed up quickly

Click to expand...

Rainmaker
Just remember what EBITDA is - it excludes interest, depreciation and amortisation - I don't see them breaking even in FY08 given that they didn't even give us an indication of the bottom line. The reality with these guys is they weren't even operating cash flow positive for FY 07 and the gearing has gone up due to taking on an extra $40 Mil in debt this year to fund acquisitions of PP&E. It is fairly obvious they have a significant liquidity issue here, the more debt you take on, the more interest you obviously have to pay, the further in the hole you are this year than last year. To me, the issue here is whether the inventory on balance sheet could be sold at book value - because if it isn't worth much, then they were probably close to insolvency this year!!!

Still, I do concede that the business could turn around. But god that Volante acquisition proved to be a whole lot more than they expected to take on.

Cheers

Bottom line for Commander is that they increased debt to buy Volante however their sales are diminishing every month. The Volante purchase was to give CDR the ability to implement high end voice & data solutions.

It is common knowledge within the industry that CDR had a problem in implementing the solutions they were selling to enterprise and government (E&G) clients. CDR's solution was to purchase Volante who are leaders in implemention of these solutions. Great solution and they now have the ability to implement what they were selling.

Unfortunately for CDR they lost a lot of key customers & staff who were tired of waiting for CDR to lift their game. In addition to this the 2nd issue CDR have is that they decided to go the franchise path. Problem with that is the franchises do not have the same level of skill sets so they are now selling into the SMB space which doesnt generate the same cash flows or pay the bills. The communications industry has as many problems getting skilled staff as a lot of others so the people who were worth having went fast and the franchises are getting lower skilled people which is reflected in the market they are targeting to fit their skill sets.

In short, their revenues are decreasing and paying more in costs at a corporate level so they are being revalued accordingly. They might make some money slicing up the phone book for a while but that is short term.

They are also now off the S&P list so they will retreat further IMO. My view is they need to get back into the E&G space and find a new source of clients which they lost when they cut their ties with Telstra (caused by selling carriage against Telstra when CDR bought RSL.com). Once upon a time Telstra handed Commander every E&G prospect they had which CDR no longer receive. Telstra are not going to hand opportunities to their competitors. Telstra now pass these off to a new business (TBS) so CDR are no better than any other dealer channel. I would descibe CDR as an NTG with morals as they do the same thing, sell bundled hardware with Voice and data carriage. Differences being CDR are good in the VoIP area which is where they need to concentrate. When they announce they are taking Cisco on in the market place then they will start to show some value to the shareholders again.

Just my opinion.

CDR dropped to 54c today. Have no idea what is going on. can't imagine this the the stock price of a $1b income company.

I think that if you check the recent ASX announcements you will find it is no longer AUD1B as it has been removed from the ASX200 index based upon the continuing decline of the market capitalisation.

You know the news is bad when the large institutional investors are sending in notices advising that they are ceasing to be substantial holders.

This is becoming a fire sale not unlike Repco 18 mos ago and who knows when & at what level the decline will stop.