Recent research from analysts at noted broker Wilson's has painted a bullish outlook on 5G Networks Ltd (ASX: 5GN) shares. According to the report, 5G Networks is poised to emerge as a winner from the COVID-19 pandemic with multiple revenue drivers expected to fuel growth in the short and longer-term.
How has 5G Networks performed?
5G Networks recently released its financial report for FY20.
According to analysts, FY20 can be interpreted as a transition year for 5GN, with the company moving from lower margin products and services and focusing on high margin initiatives.
Highlights from 5G Networks' report included revenue for FY20 of $49.3 million and earnings before interest, taxes, depreciation and amortisation (EBITDA) more than doubling to $6.6 million. In terms of revenue, the company reported a 16% growth in recurring revenue and 700% increase in operating cash flow.
5G Networks cited a number of key developments in FY20 for the company's solid performance. These included key acquisitions of data centre services and migration of its product mix. According to 5G Networks, these developments have positioned the company to meet growing demand for cloud-based services. The company also noted its strong cash position of $23.5 million, which will allow it to pursue future acquisitions.
Although the company's revenue line slightly missed expectations, analysts are still bullish on their outlook for 5G Networks.
Why are analysts bullish on 5G Networks shares?
Analysts from Wilson's elaborated on their 'Overweight' rating on 5G Networks and cited several factors.
Firstly, analysts believe that the company has genuine short and longer-term revenue drivers. In the short-term, increased demand for cloud-based services and migration to the 'cloud' are tipped to drive revenue growth. In the longer term, revenue drivers include ongoing digital transformation programs and the increasing need for ICT security among businesses.
There are also strong profit drivers for 5G Networks, with primary revenue driven by new customer wins, operating leverage and synergies from acquisitions. Analysts also cited 5G Networks' revenue quality improving with recurring revenue expected to increase, allowing for a growing revenue base.
Lastly, analysts cited 5G Networks' consolidated offerings, which encompass a wide variety of software and hardware solutions. The launch of its Cloud Federation Platform earlier this year is also expected to accelerate 5G Networks' expansion.
Foolish takeaway
Unlike many companies this reporting season, 5G Networks provided investors with guidance for FY21. The company forecasts revenue between $60 million and $65 million and EBITDA between $8 million and $8.5 million.
Personally, I agree with the bullish outlook from analysts at Wilson's. With more people likely to be working from home post-pandemic and consumers transitioning to cloud-based platforms, the outlook for 5G Networks looks promising.
The positive outlook has been reflected in the company's share price, which is currently trading near all-time highs. I think a prudent strategy would be to buy a small parcel of 5G Networks shares and build on holdings in the longer-term.
