Why Reverse Corp Limited soared more than 30% today

Tiny company expects to more than double earnings this financial year

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published June 26, 2014 2:22 pm AEST

Who would've thought owning just one phone number could be so profitable?

Well, the directors of Reverse Corp Limited (ASX: REF) knew it, as did the 1,071 shareholders in the company. Reverse Corp owns the 1800-Reverse number, which allows customers to stay connected from out-of-credit prepaid mobiles on all of Australia's major mobile provider networks and payphones.

Reverse Corp also owns and operates TriTel Australia, the second largest payphone network, behind Telstra Corporation Ltd's (ASX: TLS), no doubt. And the company has also diversified into an online contact lens store, ozcontacts.com.au – in which it owns 65%.

Today the company announced that it expects to report earnings before interest, tax, depreciation and amortisation (EBITDA) of between $2.3 million and $2.5 million this financial year. That's up significantly on last year's $1 million.

There must be a lot more people out there with no credit on their prepaid mobiles!

Results have been driven by rising call volumes to 1800-Reverse, and the company says Ozcontacts.com.au is approaching profitability as well. The company says it continues to focus on lowering costs and improving the existing businesses – which must be working given the company reports it has $4.7 million of net cash. Not bad for a company valued by the market at $13.4 million.

Pleasingly for shareholders, Richard Bell, the founder, a former CEO and largest shareholder is still on the board as non-executive director. Much of the company's turnaround may well be attributed to him. After a number of years in the wilderness, Reverse Corp has sold off its non-core businesses including in the UK and Ireland, and got back to its primary business. Agreements have been signed with Telstra, Vodafone – part owned by Hutchison Telecommunications (ASX: HTA), Optus – owned by Singapore Telecommunications Ltd (ASX: SGT), and Virgin Mobile to allow their prepaid customers to use the 1800-Reverse service and it has been working.

However, the company has noted that while its core service will generate earnings in the short to medium term, over the long term, future growth is dependent on moving away from that business.

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