Spirit Telecom Ltd (ASX: ST1) is a telecommunications company which provides internet, cloud solutions, telephony services and phone names in Australia. The company has a market capitalisation of just $200 million but is making headway in revenues and scale. With the Spirit Telecom share price up more than 85% this year, could it become the next Telstra Corporation Ltd (ASX: TLS) share price?
About Spirit Telecom
Spirit is a disruptor in the IT&T industry. It developed its own advanced, fixed wireless network which means it can provide Australian small to medium-sized businesses (SMBs) with 'Sky-Speed' internet, along with managed IT services and cloud-based business solutions. It is rated as Australia's fastest internet service provider with symmetrical internet speeds ranging from 25 Mbps to a whopping 1Gbps.
Q1 FY21 update
On Tuesday, Spirit provided an upbeat business update for Q1 FY21. The business highlighted record growth and scale with total revenue at $15.6 million, up 149% year on year and 30% on Q4 20. The company has a balance sheet of $30.1 million of cash and available debt as of 30 September. Its flexible balance sheet position has allowed the company to build its acquisition pipeline with multiple targets currently under consideration and due diligence.
The company has a number of growth initiatives coming in Q2 and Q3 including:
- 70+ new resellers signed nationally
- New Spirit branded mobile products and bundles to be launched nationally across Q2 to Q3
- Federal government budget tax incentives for businesses refreshing IT&T needs
- NBN enterprise ethernet promotions
- Acquisition opportunities
The company currently has a revenue run rate of circa $80 million and is targeting circa +$85 million revenue run rate by the end of CY2020.
The next Telstra share price?
Spirit and Telstra are very different companies despite operating in the same sector. Telstra is a mature company but has struggled to deliver shareholder value in recent times. I believe there is little value in the Telstra share price from defensive, growth and yield perspectives. I feel there are far better ASX shares out that can more reliably deliver these benefits.
The size and loss making nature of Spirit does make it a more risky investment than the likes of ASX 200 companies. However, the company is trading at a cheap revenue multiple with a strong balance sheet and business tailwinds to propel its earnings. I believe the company could be suitable for investors focusing on growth and capital gains, and the Spirit share price represents good value at today's prices.
