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Technology Stocks : PGEX Pacific Gateway Exchange,INC.
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To: Bill Harmond who wrote (18)10/29/1997 7:22:00 PM
From: Clam Clam  Read Replies (1) of 95
 
Bill, I own this stock, although not big-time. I also bought RSLCF the day it went public, about a month ago (its been volatile and is only a few bucks above its opening price at $22 - I was holding out for $35).

I bought PGEX after Goldman Sachs put it on its recommended list when they weren't even bankers for PGEX. I've found it pays to pay attention when this happens (when a powerhouse like Goldman backs a competitors IPO - Alex Brown took 'em public).

Then I learned about the prospects for the industry and decided it was a good bet. Since then I have learned a lot more.

Very well positioned companies. They are the carriers carrier when the Goliaths have overflow traffic. 1 - 1.5% market share makes them a big (multi-billion dollar) company.

The key is setting up relationships in countries BEFORE they get deregulated. This is a old boys club business where its who you know and just getting everyone to cooperate.

The way I understand it is you go into a regulated market and buy facilities (a network) and you gain market share (traffic) but don't make much as your costs are set by the government (diff't in each country). As the country is de-regulated, wholesale costs drop and your gross margin increases.

It is hard to figure out how to value these things as using earnings underestimates the franchise value as you must incur substantial short-term costs to set yourself up to make the big long-term money (If you are late to a market and try to go in after it deregulates, somebody else eats your lunch).

Goldman says use 2x forward revenues but likes the industry long-term as well (so not necessarily a sell at 2x revs). Goldman was using a 12-month price target on PGEX of $40 (2x 1998 estimated revenues) but they recently upped 1998 revenue estimates from $380 to $410mm and raised their target to $54 (based on <2x 'conservatively estimated' 1999 revenues). Goldman is about to initiate coverage of RSLCF and should come out with a target in the mid-30's....

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