Broker Analysis update on NewTel, March 3:
DIRKS & CO UPDATES RESEARCH REPORT ON NEW TEL
FRIDAY, MARCH 3 2000 0:20 AM EST
Mar 02, 2000 (AsiaPulse via COMTEX) -- (Full text of a
statement. Contact details below.)
NEW YORK, March 2 PRNewswire-AsiaNet - The following is
being issued by Dirks & Company, Inc., a member of the
National Association of Securities Dealers, CRD number
42185:
We are updating our research report from November 1999
that initiated analyst coverage of New Tel Ltd. (Nasdaq:
NWLL; Australia: NWL) to reflect the fact that our short term target price objective has been met (A$2.50) and to now
establish new short term and long term target stock prices.
Note: New Tel is listed on the Australian Stock Exchange
under the symbol NWL. The Company's ADR's are listed on
NASDAQ under the symbol NWLL. There are ten shares of
New Tel common stock underlying each NASDAQ ADR.
Contents: -- Common Stock Data (above) -- Projected Operating Results through 2003 -- Summary & Investment Conclusion -- History & Nature of Business -- Industry Environment & Outlook in the New Economy (introducing a new economic model, with graph)
-- China Star Trek -- The Final Frontier (really), its potential role in the rapidly changing global political economy, and some Statistical Comparisons
No Statement or expression of opinion or any other matter
contained herein, or is likely to be, directly or indirectly, an offer or solicitation of an offer to buy or sell the security referred to above. The information contained herein is taken from sources believed to be reliable, but its accuracy cannot be guaranteed. There can be no assurance that future recommendations by these sources will prove profitable or equal the performance of past recommendations. The principals and employees of this company may trade in securities mentioned herein subject to self-imposed restrictions; such affiliated persons may at any time hold positions in issues recommended.
Summary & Investment Conclusion New Tel Ltd is one of the
younger, though faster growing companies providing
telecommunications services and equipment in Australia. Its
established focus on the Chinese community within that
country has positioned the Company with a unique,
highly-focused "niche-craft", that more recently has created
the prospect of rapidly catapulting New Tel onto the worldwide telecommunications landscape.
In 1998, New Tel teamed up with an arm of the Chinese
Government to become one of the six companies authorized
to provide telecommunications services and equipment in
Australia. This reflected the end-result of strategic planning and working relationships dating back to the early 1990's, i.e. this was not an overnight strategic development. It is now expected that New Tel will consummate the acquisition of 18 web sites owned by the Chinese Government, for which New Tel will become the ISP and China's Internet Portal. In exchange, the Chinese Government will ultimately become a 49% stakeholder in New Tel.
We believe this commercial development has yet to be fully
reflected in New Tel's stock price. Admittedly, China has a
third-world mind-set with many western investors. However, it is just that ... a mind-set. On page 6 we attempt to dispell this mind-set by providing some comparative statistics between China and the USA. For example, China's GDP is about half that of the USA's, the dollar amount of Bank Loans fueling China's economy is remarkably similar in amount to the USA's, and based on currently available information, it appears that the rapid growth potential for Internet use in China is as great, if not greater, than in other countries.
Consequently, we are revising our short term (6 months)
target stock price for New Tel to A$6/share, which represents a multiple of 40 times next year's earnings, or US$39 / ADR.
We've established a longer term (12 months) target stock
price at A$18/share (US$115 / ADR), which represents a
multiple of 45 times our EPS estimate for the following year.
Our shorter term valuation, post-asset acquisition shares
issued to acquire 18 Chinese Government web sites, imputes
a market valuation on New Tel of A$2 Billion (US$1.4 Billion).
To put this valuation into perspective, Cable & Wireless HKT, serving a relatively small market was recently valued at US$38 Billion. We emphasize that our projected valuations for New Tel, serving a considerably larger and faster growing market represent a mere fraction of that amount.
History & Nature of Business: New Tel is one of six telcos in Australia authorized to provide telecommunications services and equipment. Specifically, New Tel is more widely-recognized as part of the younger, faster growing
second-tier telecommunications companies that has
emerged amidst the still shifting milieu of worldwide
deregulation.
The Company actually dates back to 1988 when it was a
business unit of Transcon ... also a public company traded on the Australia Stock Exchange. Transcon's R&D business
included applications of imbedded software technology in
mobile equipment, and in July 1998, from this genesis, these
commercial applications were bundled together under one
corporate entity: New Tel.
In 1998, New Tel formed a strategic alliance with Xinhua
News Telecommunications (Australia:XNTL), initially owning a
25% equity interest. XNTL, in turn, is a wholly-owned
subsidiary of Xinhua Holdings of Hong Kong, the commercial
arm of Xinhua News Agency in China and the fourth largest
news agency in the world.
XNTL's stated business focus is to provide telecommunications services to Chinese speaking people
throughout Asia using its Australian telecommunications
license as the operating base. It was a means to
commercially ally with this operating base in Australia that
compelled New Tel to acquire an equity interest in XNTL. That operating base fit snugly into New Tel's existing retail base of business, providing telecommunications services, digital data communications and cellular systems to more than 25,000 subscribers in Australia.
This indigenous customer base is forecast to increase to over 200,000 subscribers (about a 20% share of the Chinese
market in Australia) over the next three years. New Tel
services this customer-base with language-friendly customer
service representatives on a 24x7 basis.
More recently, New Tel has leveraged its growing telecommunications presence in Australia to pursue the China market, specifically to provide IPS and Internet Portal services in China -- an organic extension of its basic business in China, though much larger. New Tel's strategic alliance with Xinhua Holdings has not only deepened, but expanded, significantly. Before the end of this month, it is widely expected that Xinhua and New Tel will announce an asset-exchange whereby New Tel acquires 18 web sites currently owned by the Chinese Government for A$400 million via the issuance of 200 million shares of New Tel common stock (imputed value -- A$2.00, however, the stock had been selling at A$1.20 at the time negotiations were opened).
Following this asset-exchange, New Tel immediately becomes THE leading Internet Service Provider and Internet Portal in China. This is a statement of commercial fact.
Upon consummation of this investment, Xinhua will initially
own a 66% interest in New Tel (200 million shares out of 305
million then outstanding). However, concurrently, New Tel
intends to issue another 100 million shares to European and
American investors at A$4 / share before the end of fiscal
year 2000 (June). Post-financing, therefore, Xinhua will
maintain a 49% ownership interest.
Australian alliances with non-Australian companies is nothing new. Last year, Nippon Telephone & Telegraph acquired a 49% interest in Australian-based Davnet (PWT) for A$118 million. This imputed a total valuation on Davnet (with annual revenues of a measly A$3 million) of about A$240 million.
Comparables are essential to determine relative valuations
and last November, we translated that transaction into a
defensible market valuation for New Tel of A$2.50 per share
by March 2000. This target valuation has now been
surpassed.
Post-Xinhua's stakeholding, New Tel becomes the premier
ISP/Portal in China. Our new short term (six months) target
stock price of A$6 / share represents a multiple of 40 times
next year's EPS, a defensible valuation for a company fully
participating in the New Economy, whose top line is doubling
and whose bottom line is more than doubling over each of the
next three years. This translates into an ADR target price of US$39 / ADR.
Twelve months out, we have a target price of A$18 / share.
By the middle of next year, the market will be looking to EPS in 2002 or even 2003. This target price represents a
moderately expanded, though still defensible, multiple of 45
times the following year's projected EPS at that time. This
translates into an ADR target price of US$115 / ADR.
SOURCE Dirks & Company, Inc. CONTACT: Ray Dirks, or
Consulting Analysts: Leo Murphy or Tom Heysek, theysekatt.net, 212-832-4285 or 800-774-0778, fax, 212-486-4857, all of Dirks & Company, Inc.
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