Chase, Davenport's Recent Reports
September 18, 2000
Downward Revisions…Yet Again
On Friday, PSINet hosted its fourth annual analyst day in New York City.
We would highlight two significant take-aways from the conference:
1. Management is revising revenue and profitability guidance downward for at least the fourth consecutive period.
2. PSINet could require additional funding of $500-600 million in 2001 to support higher capital expenditures and greater-than-expected losses, which could be difficult to obtain under current market conditions.
While we recognize PSINet's assets and takeout potential, the downward revisions combined with the possibility of a future cash crunch could continue to pressure PSIX shares.
Our rating on PSIX shares is Market Perform.
Analyst Day Highlights
PSINet hosted an analyst day in New York City on Friday, September 15, 2000. During the
conference, PSINet issued a press release lowering guidance for revenue and profitability for the
next six quarters. We had originally expected Metamor to contribute $360 million and $1 billion
in revenue in 2H00 and 2001, as well as add $32.5 million and $120 million to EBITDA in 2H00
and 20001, which would have rendered 2H00 revenue and EBITDA of $967 million and $60
million and 2001 revenue and EBITDA of $2.6 billion and $315 million. We are making
preliminary downward revisions to our 2H00 and 2001 total revenue and EBITDA estimates to
reflect slower growth in PSIX's carrier access, transaction solutions, and Xpedior businesses, as
well as greater-than-expected capital expenditures. Our new 2H00 and 2001 revenue estimates are
$920-930 million and $2.3-2.4 billion. Our revised 2H00 and 2001 EBITDA estimates are $5-10
million and $175-180 million.
PSINet could require additional funding of $500-600 million in 2001 to support higher capital
expenditures and greater-than-expected losses. We expect capital expenditures for 2H00 and 2001
to total $700 million and $800 million, up from $500 million and $600 million, previously.
Furthermore, we expect end of year 2000 and 2001 cash balances to reach roughly $600 million
and a deficit of $600 million. Although PSINet has been successful in raising capital in the past,
we believe that repeated downward profitability revisions, management turnover, acquisition
integration concerns, as well as current market conditions could make it difficult for the company
to raise the necessary funding.
With the bleak outlook for raising cash in the capital markets, management highlighted a number
of additional cash-raising possibilities including vendor financing, the disposition of nonstrategic
assets, and limited spending to slow losses. We do not believe that vendor financing alone will
support the cash deficit. Furthermore, both the disposition of nonstrategic assets and limiting
investments in data center buildout could have negative effects on top-line and valuation.
Conclusion
PSINet, Inc. is one of the few truly independent, publicly-traded global Internet infrastructure
companies. The company services enterprises of all sizes with access, wholesale connectivity, and
hosting and e-commerce services over its own global network spanning. While we recognize the
value in PSINet's assets as well as its takeout potential, we believe repeated downward revisions
and potential future cash requirements could continue to pressure the stock.
PSINet Inc. Cut to `Sell' at Davenport & Co.
By Lindsey Mackay
Princeton, New Jersey, Sept. 20 (Bloomberg Data) -- PSINet Inc. (PSIX US)
was downgraded to ``sell'' from ``hold'' by analyst F. Drake Johnstone at
Davenport & Co..
quote.bloomberg.com |
