I agree with your thinking Robert. GST represents tremendous value here
Take a look at the acquisiton Brooks Fiber did 5 days ago of a company
in Texas called Metro Access Netwokrs. MAN does about $7 million in
revenue, has a few cities and no switches. GST will do $100 miilion
in revenue this year, has 18 cities operational, has about 2000 miles
of fiber they own in the ground, 1000 employees and some of the most
strategic netwoks in the country in California. Not to mention outstanding
and proven management, especially the recent additions who elected to take
lower salaries in exchange for stock options that vest north of $10.
Doing a comparable analysis to the MAN acquisition: Brooks paid $100
million for MAN or 3.1 times invested capital. Using the same multiple
on GST, a much larger and established company with faster growth and
comparable to lower risk, GST has invested $220 million in its local
business. The resulting value is $660 million- $250 million debt
or about $16.50 per share for GST. This does not include their
5.1 million share ownership of NACT, worth about $32 million, thier 30%
ownership in GST Global, worth about $20 million, their long distance
business, conservatively worth $35-40 million and their Internet business.
Altogether, about $20 per share. For a stock trading at $6.50, I like this
risk/return ratio, as the upside is large given the likely consolidation
of this industry over the next 12 months. As a multiple of revenues,
PPE, DCF analysis, they all point to a company that has a sharply higher
value than todays levels. Business is booming, and I would not be
surprised to see GST exceed estimates for the second quarter just
ended Mar. 31. Morgan Stanley apparetnly agrees, giving the company
$50 million from the Princes Gate affiliate fund they run...Good Success. |
