Investors looking for exposure to the telecoms and internet sectors could do well to take a look at EasyNet.
The pan-European telco and internet service provider has grown organically with limited investment to compete with bigger players including BT and Colt Telecom. It has previously used footballing terms to characterise itself as the Wimbledon of the sector, a plucky underdog snapping at the heels of the Manchester Uniteds.
But unlike the relegated south London club, EasyNet is on the up. Yesterday it reported a 53% jump in revenues to £19m for the six months to June 30. Net assets quadrupled and gross margins came in at 61%.
However, the company slipped into the red to record losses of £3.5m against a profit of £132,000 last time. Chief executive David Rowe, who has guided the share price from £2 to £11.50 in two years, says this is part of a deliberate investment programme.
He plans to spend the bulk of the £52m the company raised in April on new services that come with the unbundling of the local loop - like broadband internet lines - and building data centres across Europe.
Analysts at ABN Amro and Old Mutual had expected the losses to be greater and rate the shares highly. They say EasyNet is entering high-growth markets and forecast revenues of around £42m for the full year and losses of £9m-12m.
Much of EasyNet's success will depend on how BT unbundles its local loop and the rate at which competition is introduced.
Last night the shares slipped 1% to £11.30p. Old Mutual has a 12 month target on the stock of £15; house broker ABN Amro believes they could go as high as £22, having traded at £29 at the peak of the hi-tech frenzy.
Acquisition-hungry US telecommunications carriers may even see EasyNet as a useful way of gaining a European footprint.
Buy.
