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From all the long term small cap research that I have done in this bull
market, this is perhaps the best risk-reward growth story that
I have discovered.
By way of introduction, this company represents a play on practically
every buzzword of the current bull market, i.e., the trend toward
networking among corporations (notably wide area networks), the
recently passed telecom bill, the internet, the intranet, emerging
growth in Latin America, and the North American Free Trade Agreement
(NAFTA). I will try to be very brief, and I would be glad to return
any E Mail. Also, the company is very helpful with investor questions.
THE COMPANY: Charter (CHRT) was founded by Dave Olsen, the former CEO of
World Com. As you may know, World Com is currently the nation's 4th
largest long distance company. His goal is to create a company that
is a one stop shop for all internet/networking/communication needs for companies
doing business throughout North America.
The First Acquisitionn: Phoenix Data.
Phoenix data was founded around seven years ago by a former NASA scientist
named Bill Holbert. As of two months ago, the company provides local and
wide area network consulting services and internet access to 27 Fortune 500 firms. In addition,
the firm put together the NASA network in Houston and has a backlog
of thousands of billable hours in future consulting revenues for the
NASA contract alone. In addition, Phoenix hopes to receive a
significant amount of the 400-500M US government Space Station contract (the company
has a solid relationship with NASA).
This is only the beginning.
Charter is proceeding rapidly in its goal to serve US and Latin American
based businesses (as well as private citizens) with a completely
integrated "one stop shop" for all communication needs- coupling Earth
Station and networking technology, the company has begun to serve both
Panama and Venezuala, and is working on such locations as Honduras,
Mexico, etc. By "serving" such areas, I mean providing voice, data,
computer networking and inter-intranet services (although not
necessarily all services to everyone) to individuals and companies in
Latin America. As the local law requires, Charter has teamed up with
local partners to help execute its strategy.
Latin America is growing at double digit rates, and it goes without
saying that there is a burgeoning demand for reliable and robust
communication services. Modern communications infrastructure is
essential to continued economic growth.
So here you have a fully integrated communications company with
relationships with major fortune 500 companies, NASA, and major
Latin American countries as well. The pro forma growth in revenues
for the combined Charter/Phoenix combination has been well over 50% per
annum and should continue at this pace for the forseeable future.
VALUATION: There are currently about 12,000,000 shares outstanding
in total, but only about 750,000 shares in the float (the remainder
being restricted for at least another year or more). Thus, the market
cap is about $48,000,000. All this for a company that may do 75-100M
in revenues within the next year or two. Current revenues are running
around 14M.
Interestingly enough, I figure that the Internet Access businees alone
could be worth at least $2-$3 per share, based upon current multiples
of U.S. access providers, and, for example, the multiple that MFST
just paid for UUNT (about20X revenues). In fact, this may be conservative, since margins on
internet access for users in Latin America are significantly higher
than margins for US based users. If the company can do 75M in revenues,
why couldn't it sell for 3X revenues (especially given its growth rate?) At this multiple, the market
cap could jump from 40M to 225M.
The company will be off the Bulliten Board soon. At that point, it
will most definitely pop on the radar screens of the growth/communication
portfolio managers.
This company is a challenge to buy, given a wide bid-asked. Thus, I
consider it a long term holding. A Big Six firm is doing the books,
and it should be on NASDAQ within a month or so. The company is
headquartered in Houston.
Good luck doing your research. This intro is purposefully brief, but
I'd love to know whether you see as much of an opportunity as I do! |
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