Forum Archive Index - March 2004

["Cristine Kerr" <criskerr@optusnet.com.au>]

Good morning to all,

 

Re: MUL - Multiemedia Profile as at March 31, 2004

 

I was recently asked for information on MUL. There was quite a bit of work involved so it makes sense to share with all.

 

To-date MUL has been viewed as a short-term 'trade' rather than an investment, causing price fluctuations, however; MUL's profile is rapidly evolving to that of a longer term high growth investment as time progresses and achievements are consistently notched up.

 

In February 2004, MUL announced plans to acquire IP Access International, then abandoned plans as their direct relationships with International satellite vendors were growing stronger and their need for external assistance was diminishing with employees gaining increased skills - or in other words, the value equation for this acquisition tipped to more favourable outcomes from non-acquisition. Note none of the summary points below was dependent upon an MUL acquisition and therefore; has no bearing on the profile as presented.

 

Also in February 2004, MUL secured sponsorship from Bank of New York to establish a Level 1 American Depository Receipt (ADR) Program with the ultimate intention of trading on the NASNZQ exchange.

 

In March 2004, Standard & Poors added Multiemedia to their ASX300 listing, no doubt because this company is set to do extremely well this year and beyond. Standard and Poors listings are utilised by Investment Fund Managers so now is a good time to review MUL's profile as they begin to attract interest from longer term holders (which will increasingly stabilize the SP).

 

It is no secret that there is some higher risk associated with MUL's high total share volume but, in consideration of this; MUL is managing the current market situation far better than most others with far lower share volumes, and this is a great omen for its future SP growth. For a stock with this type of potential, it is not uncommon for demand to outstrip supply, resulting in a climbing SP. As a comparative example; Oxiana's issued share capital is 1,184,509,930. Similar to Oxiana (SP growth >350% over 2 years); the share capital will be of decreasing concern as MUL's potential is realised (which in view of their profile, is likely to occur much faster than with OXR).

 

I have extracted info from Findlay & Co Stockbrokers Limited - Corporate Research Report - August 2003 which can be viewed in its entirety on Multiemedia's website. Parts of this report, eg; sales contracts; have been updated with ASX announcements to-date, and I have included some of my own notes*.

 

I think you will agree, the report presents compelling reasons to view MUL as a longer term high growth potential investment.

 

 

1) Forecast Earnings & Yield 2004-2006

 

a) NPAT A$m

2003 - $1.3m - yield o%

2004 - $34.0m - yield 13.3%

2005 - $82.0m - yield 32.2%

2006 - $139.0m - yield 54.5%

 

b) Multiemedia commenced commercial satellite operations on October 1, 2003 with a 5-year contract to increase from 1 to 3 transponders. Each transponder generates A$100m in revenues at current prices. In FY2004 the rapid deal flow from Multiemedia’s superiority is expected to generate operating revenues of A$100m including 70% from space & end user equipment.

c) We value Multiemedia @ 10-15x FY2004 earnings forecast at A$34m implying a valuation of A$340-510m representing 37-56c per share using current issued capital of 910m securities. We have assumed a dividend payout ratio of 25% if the business plan is realized.

d) Multiemedia achieved pre-launch letters of intent revenues of A$22m after 45 days in FY2004 implying an annual revenue achievement in FY2004 of A$183m.

e) We forecast a transponder would take 1 year to sell such that by FY2006, Multiemedia could have fully sold its 3 transponders of capacity.

f) *Initially, costs incurred in establishment of infrastructure for this type of service are very high, however; costs will decline and profit margins will continually improve.

g) Additional Revenue Sources: MS SPLA Licensing Program, Tracstar Antennaes

 

h) MUL - Multiemedia - Overview of Half Year Report to 31 Dec - released to market Friday, 27Feb, 2004

Negatives:

1. Revenue $8,202,000 (down from same 6mth period Jul-Dec 2002 - $14,505,000)
2. Net Loss $4,558,000 (up from same 6mth period Jul-Dec 2002 - $518,000) - Loss in in line with the Board's expectation of loss for this period Jul-Dec 2003.
3. Cash burn rate - associated with sales and development work in progress

Positives:

1. Current Assets UP since June'03: $14,923,000 ($4,101,000 - June 2003) ------------ *NB Revenue Genrating
2. Non-current Assets UP since June'03: $3,651,000 ($2,026,000 - June 2003)
3. Curent Liabilities DOWN since June'03: $3,833,000 ($6,893,000 - June 2003)
4. Non-current Liabilities DOWN since June'03: $296,000 ($369,000 - 2002)
5. Board is confident work in progress will see a substantial turnaround by June 30th. (NB Refer positive announcements since 31 December.)
6. 1,376% increase in assets over liabilities.
7. Cash at bank (as at Dec03) - $11,000,000
8. Disposal of non-core businesses has been finalized.

Supporting Info:

• Businesses: Both of the following synergistic businesses have been branded for global recognition in conunction with independent marketing and advertising agencies.:

High speed satellite broadband: NEWSAT - Newcastle based teleport being developed into a world class facility with the capacity to initially provide hi-speed broadband connectivity to 60% of the world's population. Customers secured in Aust, PNG, Timor, Iraq, Iran, Bahrain, Saudi Arabia, Lebanon to-date.

Technology Distribution: MTD - For the Jul-Dec'03 period, this segment contributed the majority of revenue.

h) Sales Contracts and Licensing Fees:

$ Transcom ISP in UK for A$15m over 3 years for 1,000 sites

$ SP Telecom in Australia (not disclosed)

$ Australian Private Networks for A$1m

$ Microsoft SPLA Licence worldwide with sales potential of A$150-$200M on a 2-3 year time horizon

$ People Telecom in Australia (not disclosed) with 16,000 customers

$ US Military - US Agency for International Development - A$5M (to possible A$40M)

$ WaveCall, the world's leading provider of Maritime Satellite Voice and Data Services selected Multimedia's NewSat services to exclusively deliver broadband to ships at sea within Aust coastal waters utilizing SeaTel's state of the art antenna system. Service available during first quarter 2004

$ Airworks - significant contract signed with Airworks on behalf of major Airworks client, Woolworths - based on satellite broadband to 700 Woolies stores - includes additional hardware sales opportunites

$ MS Licensing - $ unknown - a typical 1st Tier MS distributor in Aust records sales of A$150-A$200m in annual revenues and can be sub-licensed to resellers ..... NB MUL's SPLA licence is worldwide.

 

2) Key Points - Market, Market Share, Forecast Growth & Earnings:

 

a) Data & Internet Solutions in Australia including ISDN have an estimated market of A$6 billion.

b) The bandwidth capacity in Australia provided by cable and satellite combined is estimated to have increased by +655% to 2,100 Gbits/s during 2000-2003.

c) Revenue forecasts for the period 2004-2006 for Multiemedia reflect market shares of 2% - 8% with 1 satellite transponder in 2004 rising to 3 transponders in 2006.

d) Additional Market Growth Factors: Sadly, terrorism is good for MUL's business and there is a definite 'pull market' factor as evidenced by the US Military deal in Iraq (see Item 3g below)

e) Related Products: MS Licensing - The SPLA program of Microsoft is a new application software licensing agreement allowing the licenceholder to licence Microsoft's products on a monthly subscription basis to end users. The end customer may choose to allow the SPLA Program licenceholder (Multiemedia) to become the licensee of the MS software by acquiring licences through the Program. (In 2003 Microsoft won a 6-year US$471m software supply contract for the US Army's 494,000 PCs involving software reseller Softmart, a key endorsement for its efforts to improve the security of its software. The US Government are upgrading IT systems throughout the security services as part of its 'war against terrorism' and the increased focus on national security.)

f) Related Products: Tracstar Systems partnership (America's leading developer of auto self-deploying antennaes) to rebrand (rebranded to NewSat) and sell its products in the 60 countries covered by the NSS6 beam. Mobile broadband is an emerging giant worldwide and Tracstar technology is deployed in organisations such as US Dept of Defence, CBS, Homeland Security and EMS Services. Tracstar's antennaes are utilised in Broadcast, Emergency Services, Security, Defence, and Telemedicine industries. NewSat customers will have the ability to deliver internet, VoIP (voice over IP), and other broadband related services into regions which until recently were unable to utilise these communication mediums. Mobile broadband will be possible in any area capable of sustaining a 4WD vehicle, eg; medical emergency in jungles of Indonesia, filming in remote locations, etc. NewSat technology will therefore be capable of delivering instant communications via notebook to any country in the world.

 

3) Operational/Competitive Advantages:

 

a) Comparative Downlink speeds:

 

Multiemedia - 60,000 kbps (100% coverage)

Optus - C1 - 35,000 kbps (100% coverage)

iPStar 1 - 8,000 kbps (70% coverage)

ADSL - 256 kbps (70% coverage)

Cable 256-2000 kbps (30% coverage)

ISDN - 1,920 kbps (96% coverage)

Videoconferencing requires up to 784 kbps.

ADSL only within 3.5 kms of telephone exchange.

 

b) Technology: Multiemedia claim a superior VSAT terminal infrastructure for 2-way communication using PCMA (paired carrier multiple access) reducing bandwidth by 50% on the downlink space segment cost for the service. (The satellite hub & terminal equipment infrastructure will be provided by USA-based ViaSat to Multiemedia. ViaSat are up to 5x faster @ 1,650 kbps compared with competitors Hughes @ 250 kbps and Gilat @ 300 kbps.)

 

c) Technology: The characteristics of NSS6 provide Multiemedia with a competitive advantage over all other satellite broadband service providers because Optus, Telstra, Telecom NZ all use Optus’ satellites with access to only one spot beam for 2-way uplink/downlink bandwidth speed - compared with 6 by New Skies’ Inc’s (Multiemedia’s) satellite NSS6.

d) Technology: For Optus, Telstra, Telecom NZ to compete with Multiemedia’s satellite broadband hub and infrastructure equipment will need to be upgraded at the service providers’ cost.

e) *Footprint: Footprint is a term used to describe satellite area coverage. Multiemedia's 'footprint' through NSS6 covers the Asia region with connectivity to Europe & USA. 15 transponders have been allocated to each market; MIddle East, Indian sub-continent, S-E Asia, Australia, China, N-E Asia. 6 spot uplink beams, per transponder (each covering 650 klms) target metropolitan cities in coverage areas:

China: Bejing, Tianjin, Hong Kong, Shanghai, Wuhan

Japan: Tokyo, Osaka

Korea: Korean Peninsula

Taiwan: Taiwan

Australia: Sydney, Melbourne, Adelaide

India: Delhi, Mumbai, Chennai, Bangalore

*Now that's a footprint!!!

Satellite broadband is also well-suited to Australia's (indeed the world's) vast regional areas where cable and ADSL are either not available or too slow. Consider in terms of the percentage of regional businesses (mining, etc), public services (schools, medical, etc), that have been underserviced and overlooked for far too long. (For example; SP Telecom has already established a hub and terminal agreement with MUL to service customers seeking high speed broadband internet in regional NSW.) Then of course there is the potential for worldwide applications, such as MUL's deal with the United States Agency for International Development - initially worth $5 million to Multiemedia, it could be worth up to $40 million as the group intends to roll out additional sites across Iraq as part of its post-war enforcement and governance program.

f) Technology: C and Ku band frequencies are relatively congested providing Ka band with an advantage of bandwidth and speed. Ka band offers smallers terminals than Ku band. Importantly for Optus' newest satellite, C1 launched in 2003, Loral have entered Chapter 11 in the USA for financial restructuring, and for AsiaSat's satellites 3 & 4 launched in 1999 ad 2003 Boeing have decided to withdraw from the manufacture of commercial satellites to focus on military applications. This implies New Skies have the youngest fleet with the best technology and configurations for the future with the satellite industry analogous to the airline industry from a fleet perspective.

g) Market: Re US Military multi-million dollar deal  - Tuesday, 11 November 2003 - While the deal is initially worth $5 million to Multiemedia, it could be worth up to $40 million as the United States Agency for International Development intends to roll out additional sites across Iraq as part of its post-war enforcement and governance program. Multiemedia Chief Executive Adrian Ballintine said the wireless two-satellite service would allow the US military to communicate from anywhere in the Middle East. “There is only one service provider in the region providing any form of satellite service, and that is quite old. The US military will now be able to set up sites across Iraq and simply, by pointing their dish in the right direction, will have Internet and communication service equivalent to anywhere in the world,’’ he said. ... ' + more promising news - view complete media release on website. ' ... Mr Ballintine said Multiemedia had not planned to activate the satellite beam over the Middle East/Africa until next year because of the cost involved. “However, with the US military and other customers we signed in Dubai, we have brought it forward 12 months earlier than anticipated.’’ ... ' The significance of this statement is in the 'pull market' factor (as opposed to a 'push market' factor), that is; this scenario is indicative of a large untapped market demand that caused Multiemedia to bring forward plans by 12 months. A 'pull market' factor is extremely rare and therefore; highly significant.

h) Product: The Tracstar partnership (antennaes) was prompted by an influx of enquiries from end-uers - CFA, Police Departments, Ambulance Services, local news broadcasters, and numerous other internationally based support services. This NewSat initiative is the first commercial <$30K, immediately available mobile solution.

i) Product: Through the addition of products/services, eg; MS SPLA Program, Tracstar; Multiemedia has added another dimension to their business and appear to be progressing toward a 'full service' business, or if you like, a 'one stop shop'.

h) And finally, MUL have new staff on board with skills to drive both businesses.