guess i'm the only one here. finally got the SSB report. here's part of it:
CLTL - Intitiating Coverage on Completel with a Buy Rec
Salomon Smith Barney
Wednesday, May 24, 2000
Gareth Pulman
SUMMARY:
* A premier French and German CLEC opportunity
* Fully funded through 17 cities
* Rare assets and state-of-the-art local networks
* Risk impact strategy, coupled with effective execution
* Initiate coverage with a 1S (Buy, Speculative Risk) recommendation and
$18 price target
OPINION:
CompleTel is at the forefront of the new generation of telecom services
operators focused on competitive local access. Currently rolling out in
11 cities, the company will be offering big bandwidth solutions at low
cost to companies in at least 17 cities in France and Germany by 2H01.
This puts it into competition with few operators other than the local
incumbent, and offers it an opportunity to push out a business plan
which: (1) is highly scaleable; and (2) leverages its state-of-the-art
assets. The company comes with a growing independent Internet business
which could become a valuable business in its own right.
1Q00 numbers beat our expectations with sales at $2.8m for the quarter,
almost as much as the whole of 1999. There were a number of key
operational achievements that support our view that the company is
executing superbly. It is fully funded for 17 cities. We initiate
coverage with a 1S (Buy, Speculative Risk) recommendation.
A HIGH-IMPACT STRATEGY COUPLED WITH EFFECTIVE EXECUTION
CompleTel's strategy involves building local networks to offer voice and
high bandwidth solutions to medium-sized companies and government
entities. It conducts extensive demographic research to determine the
routes that pass the most clients in target segments. It concentrates on
France and Germany - the largest markets in Europe. City-by-city roll-out
is quick and the company has no sacred technological cows - it will be
adding wireless local loop if it wins licenses and xDSL to its dense
fiber networks over the next few quarters.
RARE ASSETS: STATE-OF-THE-ART LOCAL NETWORKS
Local loop assets are rare. CompleTel typically builds in areas where
there is little if any competition except from the local PTT, although in
Germany it also runs up against MCI WorldCom, VIAG Interkom and Arcor. As
a result, it is likely to take share quickly. As there is a clear
first-mover advantage in cities, with limited opportunity for competitor
overbuilding, we believe CompleTel will establish itself as the
alternative carrier of customer choice in target markets. This should
quickly become a highly attractive asset profile.
INTERESTING HIGH-GROWTH INTERNET BUSINESS
CompleTel has an Internet hosting and co-location business, CompleTel
Internet. It complements the core telephony business, but feeds off its
client base to offer a more comprehensive set of Internet products than
are typically offered to medium-sized enterprises. Over time this will be
more than just an engine of value, it will raise the barrier against
competitors.
LEVERAGED BUSINESS MODEL
We believe CompleTel can drive sales faster than assets at a rate which
outstrips similar companies in Europe and which sits side-by-side with
sizeable expansion. This puts it in an highly attractive investment
class. 1Q00 numbers were excellent, beating expectations for sales,
EBITDA and with customers up from 124 in December to 286 now.
VALUATION
We believe CompleTel's cost of capital is just over 12%. At this value
and assuming a free cash flow growth rate of 5% post 2002 the stock is
worth just under $18/EUR20. If we allocate a cost of capital of 20% to
the internet business that provides for $7.20/EUR8 of the company's
value. So at last night's closing price the company did not just carry a
free option on the internet data center business, it was trading for less
than the value of the core CLEC. Value is very sensitive to cost of
capital. We can justify $11/EUR12 at a global cost of capital of 14%,
equivalent to the current spread on its debt.
On a relative basis CompleTel will look expensive relative to COLT until
its business is nearer the same size. (CompleTel is just starting - in
1Q00 COLT was 47x the size of CompleTel). But at 7.5x sales in 2002 and
5.7x net plant in 2001 (5.3x in 2002) the stock is trading cheap relative
to its better known peers. It goes without saying that we believe those
peers, including COLT, Allegiance, McLeod and Energis, are significantly
undervalued at these levels.
Finally we hold out the real prospect of estimate upgrades. This stock is
growing fast in a volatile telecom market with competitors increasingly
strapped for capital. A fully funded well run CLEC could surprise on the
upside.
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