DBAB remains bullish
excerpts from dbab released 8/24/01. I think this was released after the close (but i am not certain)
>>
GX Valuation 2nd lowest in the entire sector. We see this as incredible
opportunity.<<
>>
GX's business plan is NOT broken, unlike others in the sector. Salespeople
have not left the company, in fact no other company has signed over $1Bn in
deals this year. GX has marketing channels, unlike new wholesalers
attempting sell services to end users, which are looking for viability and a
track record.
* Liquidity remains high and flexibility on spend is much higher than most in
the sector, yet GX is trading lower than the group. Even assuming modest
EBITDA growth the company remains liquid. Expect to see further CapEx saving
and efficiencies. Below we highlight our view of the company's current
liquidity.<<
>>
Customer list is impressive, with almost every financial institution as a
customer and a marketing channel. Viability issues of competitors will
continue to make GX first choice to most customers in need of global
connectivity and services. We estimate total customer count to be over 2,000
including contracts signed this year which we sample below:
AT&T Voadafone
WorldCom Deutsche Telekom
30+ British Government Depts Quandong Telecom
Microsoft Network Europe NATO
DACOM Yahoo!Broadcast Asia
DirectTV Broadband Securities Dealing Systems
ACCA CNBC Europe
Skadden Arps Law Firm OptiGlobe
Lockheed Martin Global Telecom US Cellular
BBC Technology / BBC VDI Multimedia
StarHub/STT Centennial Communications
Chicago Stock Exchange Diveo
Blackwood Securities U's Communications
DACOM Corporation SWIFT
Digitel and BI Group TRICOM
Computer Sciences Corp Cable & Wireless
* Global Crossing has a virtually complete network (ex-Asia), while others
have only begun or have curtailed their plans. Customers are choosing
networks today, not something which may or may not be complete over the next
few years. GX has a track record or providing service globally, with a
network which is secure and highly reliable.
* Contrast Global Crossing's international presence to US pure play wholesale
providers with higher multiples. US wholesalers face a competitive field of
over 20 carriers with similar networks, providing virtually no
differentiating feature, when moving traffic from LA to New York. GX on the
other hand can do almost anything on a global basis, with little competition.
A US pure play wholesaler has a fixed cost and has to deal with falling
prices - leaving them with a margin squeeze over time. The GX hybrid
strategy, takes advantage of short term wholesale opportunities and also
captures the margin upside of corporate/MNC end users.
* Asia Global Crossing is far ahead of new competitors. The JV structure is
working well and AX is the closest to entering China through Hutchison
Whampoa. Other competitive carriers are attempting ineffective strategies,
globally and in Asia, but their regional plans are flawed in our opinion. At
the end of the day, by eliminating other carriers and competition, the
capital markets have aided GX and AX, by allowing them to extend their leads
over newcomers.
* New deals are on their way. We recently wrote that the breakup of Concert
will help GX in two ways. First, GX can easily skim some customers the JV
collapse. Second, we hypothesized that GX would work with either AT&T or BT
to become their network provider. Our research and contacts in the field
have indicated that this hypothesis may actually become reality. We expect
other deals to be signed this year, including DT, which in total can exceed
$500Mn.
* Investors have complained about swaps, unfortunately, every carrier uses
swaps or pseudo swaps to create their network over time. In GX's case, the
"swaps" number was high, which the company acknowledged and disclosed. We
note no other companies have done this. GX however will not "build" local
network or colo from scratch. This would take years. For example, we know
GX acquired fiber capacity in certain regions, South America specifically,
colo on the west coast, local in the US, all through swaps. We believe the
lesser of two evils is swapping to create a network versus increasing CapEx
to build from scratch.<< |
