UWL - Uniti Group

[Dona Ferentes]

from a week ago

- EBITDA and EBITDA run-rate guidance issued in February 2020 reaffirmed
- Business performance, including March 2020 month-to-date, above forecast
- Increasing demand for UWL’s high speed domestic fibre broadband services
- Net cash reserves of more than $34M, as at 20 March 2020
- Business-wide measures implemented, including to enable remote operation
- Both operating and after growth capex cashflows positive

and for Quarter Ended 31 March 2020

- 217% increase in like-for-like Net Operating Cash Flow on prior quarter
- 754% increase in Free Cash Flow on prior quarter
- Free Cash Flow exceeds 72% of Net Operating Cashflow
- Annualised run-rate EBITDA as at 31 March 2020 tracking above forecast
- March 2020 quarter saw record net growth of FTTP connections in W&I division
- Above-forecast quarterly performance in all three UWL business units (‘pillars’)
- Cash reserves increased by 12% on prior quarter to $37.7m

Coming up for one year since IPO. Market didn't quite believe the 'warm and fuzzy' from last week, but up 13% today.

 

[Dona Ferentes]

As well as Uniti Group Limited (UWL), formerly Uniti Wireless Limited, in this space, we have OptiComm (OPC)
and 5G Networks (5GN)
and Spirit Telecom Limited (ST1)
- and probably a few others. Remember BigAir, taken over by SuperLoop SLC?

... And it looks like a sector 'ripe for consolidation'.

ACQUISITION OF OPTICOMM by a RECOMMENDED SCHEME OF ARRANGEMENT

CREATION OF A GROWING, LARGE SCALE NATIONAL PRIVATE FIBRE CHALLENGER, with requisite scale, capability and adjacent market opportunities

Strengthened RECURRING FINANCIAL PROFILE with HIGH LEVEL VISIBILITY INTO FUTURE ORGANIC GROWTH with approx 190,000 combined contracted lots.

Immediately EPS accretive pre-synergies and 23% EPS ACCRETIVE including $10 MILLION of estimated RUN-RATE SYNERGIES

Uniti’s acquisition consideration of $532 million funded via a $270 MILLION ENTITLEMENT OFFER, $150 million new debt facilities and 84.0 million Uniti Shares with an implied value of $125 million

Uniti confirms FY20 EARNINGS GUIDANCE UPGRADED

 

[Country Lad]

Well predicted Virgil aka @Dona Ferentes. No leaking of that transaction. I held UWL until I sold last Friday when stops said sell. How was that for bad timing. No indication in chart or volume or unusual trading.

 

[Dona Ferentes]

Well predicted Virgil aka @Dona Ferentes. No leaking of that transaction..... No indication in chart or volume or unusual trading.

and now we know why, young fella. It all happened on the weekend... From the AFR:

In a strange twist of fate - and in a good example of how corporate M&A deals can turn on a dime - it was Telstra's move to sell a bunch of fixed broadband assets that sparked Uniti Group's $532 million bid for rival internet play OptiComm.

The Telstra assets were dubbed "Project Velocity" and were offered to NBN Co under an agreement between the pair. NBN Co baulked - refusing to pay about $40 million - so Telstra went to some industry players to find a new owner.

OptiComm, advised by Morgans, emerged from the market soundings in pole position. Its management had the appetite for the assets and the financial firepower, with its shares more than doubling in less than one year on the ASX boards. It is understood OptiComm was willing to pay about $70 million for Telstra's Velocity in a process that wrapped up about one month ago, according to fund managers briefed on the matter. The parties were about to sign a deal when Uniti entered the scene.

Uniti's voracious dealmakers got wind of Telstra's Velocity, and approached the company asking for a chance to take on OptiComm. Telstra opted to run another round and was calling for binding bids for the assets by June 23 (next week). OptiComm was even told it would need to pay about $50 million more to secure Velocity, and Telstra told both parties it wanted to transact by June 30.

So OptiComm thought it was in a two horse race for Velocity.

But it turns out it was a one horse race for OptiComm; the predator was actually the prey. Instead of bidding for Telstra's Velocity, Uniti turned its attention to OptiComm.

Uniti had come together quickly in the past 12 months, under the watch of ex-M2 Group duo Vaughan Bowen and Michael Simmons. It had snapped up all sorts of telecommunications services assets - everything from internet voice calls, 1300 number owners and a broadband network owners (like OptiComm, but smaller) - and was ready for its big move, dubbed "Project 2020".

Sources said Uniti went to some of the shareholders that own both stocks and convinced them of the merit in putting the two together.

Uniti got the response it was after; and what culminated was a mad weekend as Uniti and OptiComm agreed the $5.20 a share bid, and the acquirer's brokers, Bank of America and Goldman Sachs, helped stitch up the associated equity raising. Street Talk revealed the deal on Sunday.

The raising flew out the door on Monday. Fund managers reckon it puts two similar businesses together, albeit ones that target different markets and whose customers should not overlap. The question is whether Uniti can hit the $10 million estimated synergies, or perhaps whether it can sit long enough for shareholders to judge the deal longer term.

So, there's now the question, assuming this goes ahead, as to whether UWL can grow the larger business, whether the synergies are real, and etc. I was always worried about UWL's ragtag collection of assets, some growing but some unloved and in delcine, so we may see a real Telstra fixed broadband alternative emerge, and that would be good.

And, there's still the original Telstra parcel ('Velocity') sitting there for some upstart to contemplate?

 

[Dona Ferentes]

Livewire Markets: Okay. Next stop is Uniti Group. It's just acquired OptiComm for $532 million. It's upgraded its guidance and OptiComm shareholders even got a 10 cent special fully franked dividend. It's all happening. Buy, hold, sell?

Tobias Yao (WAM) (Buy): So Uniti Wireless is a buy. We believe that the large telecommunication companies in Australia are constrained in terms of what they can acquire, due to ACCC concerns. As a result, Uniti Wireless is in the box seat to be the consolidator in the space. We like the acquisition of OptiComm, the contractor dwellings underpins a really strong medium-term outlook. We believe it's very synergistic and Uniti Wireless can continue to enter into other adjacencies. So it's a buy for us.

Livewire Markets: Okay. Arden, are you going to show Uniti with Tobias's opinion? Buy, hold, sell?

Arden Jennings (Ausbil) (Buy): I agree. Yeah, definitely agree there. It's a buy, Vishal. It's a high conviction position for us. Management are fantastic. They're very experienced, the XM2 telecommunications management team - the old band is back together. We really liked the acquisition of OptiComm that is expected to close in the next few months. We believe there's significant synergies there on offer. So they've outlined $10 million worth of synergies, but there are potentially double or triple that in the OptiComm business. So I think there's plenty of fat in that $10 million synergy number from a cost perspective. The company combined will have around 185,000 active in connected premises....

And when you include the pipeline, that takes it closer to 400,000 premises, which is a significant number in the market. With the combined business I think, ASX 200 is a potential inclusion, so that will help with passive buying potentially, post-completion of the merger, as it will have a market cap above a billion dollars. And probably the last point, which is a bit of an added bonus, I think, is I think eventually that they may be acquired potentially by a utility player. I can see that there are revenue synergies to be had with a couple of hundred thousand premises wrapping their telecommunications in with perhaps gas and electricity as well. So not the reason we own it, but a potential added bonus. So it's a buy.

 

[Beaches]

The takeover offer is for 3.4228 Uniti shares for each Opticom share or $5.10 cash or a combination of shares and cash. Opticom is also paying shareholders a special fully franked dividend of 10c.

Uniti (UWL) is currently trading at $1.59 and Opticom is trading at $5.21. For a cheap entry to Unity, buying Opticom would give a discounted entry price of around $1.52 to Uniti. The 10c dividend would bring that down to $1.49.

The takeover of Opticom is by scheme of arrangements which requires approval of shareholders and approval of the Supreme Court. Consequently, the takeover is a somewhat drawn out affair.
Takeover announced - 15 June
First court hearing - 7 August
Shareholder meeting - 11 September
Second court hearing - 18 September
Uniti shares issued and trading around 25 September

If for some reason the takeover did not go ahead, the Opticom shares would drop significantly and the special dividend would be cancelled. However, given that it is a friendly takeover and the management and directors of both companies are recommending the deal, it is unlikely not to proceed.

Opticom shareholders are required to lodge an election notice for shares or cash option by 2 September.

 

[Dona Ferentes]

Small cap darlings' merger challenge
https://www.afr.com/companies/telecommunications/small-cap-darlings-merger-challenge-20200812-p55kzk

Basically, the boss of Uniti is an entrepreneur, started out with M2 Comms, then with UWL made a set of acquisitions. OPC has grown organically; this will be Uniti's biggest move, and the enlarged entity should make it to S&P200 inclusion.

They both mainly lay fibre to premises and charge internet providers for access. UWL is new housing estates and low rise developments, while OPC was more high rise and apartments. They were starting to nip at each others' territory. The combined group will have 109,500 active connections, and an additional 78,000 connected premises, and there are another 188,000 contracted lots.

Sounds like a lot of groundwork, getting the synergies, and converting connections to active monthly payers.

 

[Dona Ferentes]

Rival bid for Opticomm received, and that SP has surged.... Uniti has dropped 6%.

I wonder if the serial acquirer will match it? And overpay for what is essentially an infrastructure play?

 

[bk1]

Conditional offer that is not superior in the view of the Opticomm board, but the UWL share price has taken a hit that's for sure. Last minute bid, dont know what to make of it...

 

[Dona Ferentes]

Conditional offer that is not superior in the view of the Opticomm board, but the UWL share price has taken a hit that's for sure. Last minute bid, dont know what to make of it...

its a late lob. 5.85 is superior to 5.20. Board will consider it. (take no action)

 

[Dona Ferentes]

Uniti has now lifted its cash and scrip offer for OptiComm from $5.20 a share to match the Aware (First State) Super cash offer. The revised $4.835 a share cash plus scrip* bid, to get to $5.85 a share, and match the $600 million offer by First State Super.
*0.80537 Uniti shares per OptiComm share (which implies $1.015 per OptiComm share calculated on the basis of the closing trading price of Uniti shares on 11 September 2020 of $1.26)

Also, UWL and its advisers have come up with a crucial action by effectively convincing OptiComm’s institutional investors to throw their weight behind the Uniti offer. Uniti has grabbed a 6 per cent stake in OptiComm and has a call option over another 13.5 per cent, giving it an effective blocking stake of 19.5 per cent. Given management holds about 40 per cent of OptiComm, it will be hard for Aware to build a similar stake in the business.

Uniti and its advisers believe the super fund won’t launch a hostile bid, so it feels confident that it has struck the vital blow (and market action today bears this out).

Its new bid clearly took the market by surprise and the group hurting most are the short sellers, who had boosted the proportion of shares in Uniti sold short from 8 per cent to 12 per cent following the Aware offer. They got badly beaten up on Tuesday, with Uniti shares leaping more than 17 per cent today.

 

[blofeld]

So is this still a good time to be buying UWL? The price seems to be holding steady around 1.45 today.

 

[bk1]

Let the dust settle from the Opticomm acquisition, in my opinion.

 

[Dona Ferentes]

September 2020 quarter saw another strong performance by Uniti in terms of Net Operating Cash Flow and Free Cash Flow, reflected in growing cash reserves (excluding rights issue proceeds). This continued operating performance improvement is a direct result of organic growth being delivered across the Uniti Group as a whole, stringent cash disciplines and an ongoing focus on extracting operating efficiencies.

There have been notable developments in respect of Uniti’s proposed acquisition of OptiComm during the September quarter (and also during the month of October), due to the competitive situation which has arisen with another prospective acquirer. Uniti’s most recent ASX announcement on this matter on 15 October 2020 (OptiComm Acquisition – Superior Proposal) provides detail of the current status of this transaction.

The Board would like to make clear to our fellow shareholders that whilst we remain focused on acquiring OptiComm, in light of it being a highly accretive and strategic acquisition, we remain disciplined and measured, as we have proven in all past acquisitions. Uniti has proven to be able to acquire and integrate quickly and effectively to generate material accretion for shareholders as evidenced by the returns now being delivered to shareholders from the W&I business, where we acquired businesses at greater than 14 times historical EBITDA which are now delivering EBITDA representing a 5.4 times multiple of aggregate acquisition consideration. This has been achieved in less than 12 months.

 

[Dona Ferentes]

The securities of OptiComm Ltd will be suspended from quotation at the close of trading today, Friday, 13 November 2020, in accordance with Listing Rule 17.2, following lodgement of the Federal Court of Australia orders with the Australian Securities and Investments Commission approving the scheme of arrangement by which Uniti Group Limited will acquire all of the issued shares in OPC.

- tough luck, Aware Super Fund. No synergies.

 

[Dona Ferentes]

but wait, there's more

- Uniti acquires 100% of fast-growing, specialist Retail Service Provider, Harbour ISP
- Harbour ISP specialises in delivery of superfast retail broadband services in ‘greenfield’ developments
- Preferred broadband RSP with leading Australian greenfield property developers, including Mirvac
- More than 30,000 retail broadband customers, doubling Uniti’s current retail customer portfolio
- Purchase consideration of $9.25M + 1M options (at exercise price of $1.54) to acquire UWL shares
- Forecast earnings contribution, including synergies, of $3M+, a purchase multiple of ~3x EBITDA
- Consistent with the rationale for Uniti’s Functional Separation Undertaking accepted in October 2020
- Highly strategic & accretive acquisition, enabling greater penetration & revenue expansion on Uniti owned fibre networks, including those added via the OptiComm acquisition

 

[Dona Ferentes]

Let the dust settle from the Opticomm acquisition, in my opinion.

all rather sudden; digested Opticomm with ease, or just another offer too juicy to refuse?

Reasons for trading halt: To enable an orderly release of information regarding an acquisition and commencement of an associated capital raising via placement and offer by way of share purchase plan to eligible shareholders.

 

[boofhead]

They have agreed to take Telstra Velocity and South Brisbane FTTP assets.

 

[bk1]

There's your answer, the institutions agree and an oversubscribed placement helps the share price by 14%...

 

[Dona Ferentes]

There's your answer, the institutions agree and an oversubscribed placement helps the share price by 14%...

so, why is Telstra selling it; "Non-core" ??

I saw something, that the Velocity biz was going for 6.7x EBITDA, and UWL is at 16x, so to their way of thinking, lets add to the mix and it will deliver better Metrics. But isn't this sort of thing inherently fickle, and outcomes easily bent by supplying only part of the story?

Forecast annual EBITDA contribution to Uniti of $ 21M, commencing from early January 2021 and potentially increasing post migration of assets and services
~ 13 % EPS accretive and increases FY21 pro forma EBITDA by more than 20% to $116M
Acquisition funded by mix of debt, underwritten equity placement and share purchase plan
Uniti net debt to FY21 pro forma EBITDA ~2.3 times ratio at completion