Hidden Value Stocks: Meet the Next Bernie Ebbers
November 4, 1999 9:57 PM EST
By David H.M. Baker CFA
Columnist
Love Bernie Ebbers but scared off by MCI Worldcom's (WCOM: Nasdaq) soaring stock price? There's another Ebbers out there, running a little-noticed telecommunications-service company, and I think I've found him.
His name is Robert Hale Jr., and he's chief executive of Network Plus (NPLS: Nasdaq) a company that I believe is one of the single best opportunities in the market today.
The company's history is rooted in reselling long-distance service and this background has faked out the investment community, causing it to be valued at a fraction of its peers. In fact, Network Plus is a competitive local exchange carrier (CLEC) that now can offer its customers across the eastern US bundled services on a single bill -- including data, Internet, voice and an array of broadband services.
This is a must-own stock and one I believe can double in six months. The company went public in July of this year and traded as high as $30 before falling as low as $10 last month; it's now back up to around $14.
I initially bought the stock for my clients at $17 and recently averaged down, buying a considerable amount around the $11-$12 level. This company is going places and growth investors would be wise to hitch a ride on this rising star in the telecommunications sector.
In mid September I had the opportunity to sit in on a presentation by Hale. He was introduced with the comparison to Ebbers, and I chuckled and said to myself that this would most likely be a wasted half hour. Never in my life have I been happier to be wrong.
I recently spent two hours with the Hale and came away more impressed than ever. Hale, all of 32 years old, is one of the most impressive leaders I have met in a long time. In my estimation, his future success will eclipse that of Ebbers.
I realize this is a strong statement. But I believe few would disagree after meeting with him. Hale is not afraid to get his hands dirty and he is intimately involved in the operation of the business. He can often be found making calls alongside his employees and he personally makes sales calls to clients.
So you say great CEOs are everywhere, what gives here?
The key to this opportunity is that the market has not figured out that NPLS is actually a mini-Baby Bell. The company's competitive advantage is enhanced by the fact that owns its networks around its existing Northeastern and Southeastern customer bases. Network ownership and control is a key to the company's overall strategy, as it no longer has to pay a "toll" to use the networks of others and this effectively gives it ownership of the customer. Others must pay Network Plus for access.
The company is growing at a rate in excess of 35% and is on a $145 million annual sales run rate. I expect this rate to accelerate as its sales force kicks into high gear as the company is able to offer a wide array of new services including web hosting, virtual private networks and bundling of voice, data, and related broadband services.
The company has created its own proprietary back office administrative and billing system that will be the core of its operations going forward. In fact, this system, developed over the last several years, is so impressive that the company has been encouraged by investment bankers to spin it off into its own standalone company.
A solid back office is one of the most critical elements in a rapidly expanding customer-oriented business. This capability has certainly given it considerable scalability and a significant advantage over its competitors.
Network Plus has also developed a killer application in its array of telecommunications services. It has successfully developed technology that delivers voice over digital subscriber lines (DSL), which will allow it to replace multiple lines into small businesses with a single line.
This single line will handle voice, data, Internet and other broadband services through a bundled offering. This will significantly enhance the quality of the service and offer the customer considerable cost savings. This will become a blockbuster product, and one that will launch the company into a leadership position among its peer group in all of its markets.
Network Plus has a rock-solid financial structure, which is unique in an industry that is fraught with significant financial risk. The problem with most CLEC's is that they are always trying to raise money to fund their constant construction of new networks; that results in huge long-term debts. This is not the case with Network Plus, since the company only has $21 million in debt and it has sufficient funding to complete its network by the end of the year.
The consensus analyst estimates are losses of 90 cents per share in 1999 and losses of $1.45 per share in 2000 and the company expects that it will be cash flow positive by the fourth quarter of 2000. This is remarkable. It places the company well ahead of most of its peer group, which will lose on average tens of millions of dollars a quarter for the next several years.
Network Plus, with a market capitalization of nearly $800 million, is still just a fraction of its peers including Time Warner Telecom (TWTC: Nasdaq) at $2.1 billion, McLeod (MCLD: Nasdaq) at $6.4 billion and Allegiance Telecom (ALGX: Nasdaq) at $3.4 billion. MCLD is the largest of the group with $717 million in sales, followed by TWTC with $178 million and ALGX's $34 million. Each loses money on an order of magnitude greater than Network Plus.
David H.M. Baker CFA is an analyst for worldlyinvestor.com and president of Rivendell Capital Management. |
