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Sunday, October 23, 2005

Global Voice @ 17 cts ( Telco / Europe ) 2 comments

(P.S: Sorry for any disturbances the advertisements above may have caused you)

Main issues

1.Lingering doubts about their decision to raise funds in Singapore instead of Europe

2.Value of fiber network should be based on more market-accurate purchase cost and not build cost

3.Monetisation of network has not yet turned profitable

4.Fund managers in the stock may be a negative as much as a positive

I am always suspicious of IPOs and seldom buy them in their first year of listing. There is however another class of new listings which I am more averse to --- and that is new listings via reverse takeovers.

My impression of reverse takeovers is that they are typically subject to shareholder agreements at an EGM, and are subject to less scrutiny and screening rigor by the supervising authorities (SGX and MAS) than IPOs. They don't have to issue IPO prospectuses or do roadshows to sell themselves to investors. Correct me if I'm wrong. I personally think this is a loophole that any Tom Dick or Harry can exploit to make themselves a respectable listed company on the SGX.

A few questions to ask ourselves. Firstly, why did Global Voice want to list? Answer is that it needed access to funds: subsequent to the reverse listing through the hapless Horizon Education in October 2004, it raised S$35M by issuing 220M new shares at 16 cents per share. Secondly, why did it choose to list in far-away Asia when its infrastructure and customers are all based in Europe? That is a question which offers no clear logical answers, although I think my second paragraph above offers some clues.

I am tempted to brand this a "concept stock". Basically the selling point of Global Voice is its fiber network in Europe which spans the UK, Germany and the Netherlands, built at a cost of >600M euros. One should note, however, that a more realistic appraisal of their cost now should be ~100M euros; their fixed assets of 125M euros listed on their latest balance sheet is presumably the purchase cost of the network. And how have the company monetised this fibre network? They have plans to provide business continuity services through their network, as well as selling/leasing fiber infrastructure to customers to roll out their own proprietary products.

And so people buy in on the basis of that promise. Business-wise, Global Voice have done some work for some German and Dutch companies, and I shall not read too much into the financial statement for FY2004 since the company was only listed in October 2004. Using the 1H2005 results as a basis, Global Voice has yet to turn a profit, losing 4M euros for the 6 months to June. Take away depreciation, and it is still generating negative cash flow. Does one really want to assume that execution risk by buying in?

Lest one thinks that Global Voice owns one of the most coveted and unique pieces of network infrastructure, common sense should tell you that it can't be so if Global Voice actually has to choose a backdoor listing in faraway Asia to raise funds. Indeed, there are multitudes of pan-European fiber optic networks in existence, especially in Western Europe (where Global Voice's assets primarily are). Check out the document in the References section below.

And as for the fund managers like Fidelity buying in, note that their last buy-in was at 7.5 cents. Won't they be tempted to cash in on their two-bagger at 17 cents now? Perhaps the recent high volume might be due to that? Food for thought.

(1) GaWC Bulletin 30 Mar 2004: The Territoriality of Pan-European Telecommunications Backbone Networks




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