D1: EGLO: Development of Pac-Rim B2B Portal --
09:26am EST 5-Jan-00 Kaufman Bros (Vik Grover, CFA 212-292-8123) EGLO VERT
HRB
KBRO KBRO KBRO KBRO KBRO KBRO KBRO KBRO
EGLOBE, INC. (EGLO+ $5)
RATING: BUY
PRICE TARGET: $12
DEVELOPMENT OF PAC-RIM B2B PORTAL PROMISES TO PUT COMPANY IN THE
SPACE OF HIGH
MULTIPLE INTERNET COMPANIES
We have learned that EGLO is 75% owner of a Pacifc Rim focused
business-to-business (B2B) Internet company, with an initial presence in China.
The portal can be found at i1.com. i1.com's founder, Hsin Yen, is
President of Network Services of EGLO and was instrumental in the development
of EGLO's IP voice/fax subsidiary, IDX International, which has a strong
presence in the Pacifc Rim. Chris Vizas, Chairman and CEO of EGLO, serves on
i1.com's Board of Directors. We think the official launch of the portal, which
could occur within the next few months, will plant EGLO squarely in the space
of high multiple "Internet stocks" that are benefiting from strong growth in
demand for B2B and Internet access services worldwide, including VerticalNet
(VERT $152 9/16), Harbinger (HRBC $28 9/16), ARI Network Services (ARIS $11
7/8), Pacific Internet (PCNTF $60), Korea Thrunet (KOREA $62 7/8), and
Internet Initiative Japan (IIJI $104), among others. In general, these
companies have achieved multi-billion dollar valuations despite their
relatively nascent business plans. Against this backdrop, we think EGLO's
evolution into a "Internet stock" will result in significant incremental
interest in the company's story, prompting its valuation to expand during the
coming months.
We are meeting with EGLO management next week to discuss the "new" company's
business plan, which includes the accelerated rollout of IP voice and fax,
unified messaging, remote access to the Internet and VPNs, and (apparently)
Internet commerce services to carrier customers worldwide. It is our firm
belief that 2000 is EGLO's breakout year, during which the company's
misunderstood, global IP-based network strategy will garner significant
interest on the Street, which is endorsing emerging Internet business plans
with strong valuations. With pro forma (to reflect EGLO's imminent merger with
TransGlobal Communications) 2000E revenues of $200MM to $250MM, 2000E positive
EBITDA, a blue chip customer base that includes the largest telcos in the
world (e.g., Telia, Chungwa, Qwest/US West - Q $43; USW $66 9/16, SBC - SBC
$44 ), a strong management team capable of building a billion dollar run rate
company (e.g., Mr. Vizas founded Orion Network Systems, which was sold to Loral
- LOR $22 1/8 - for several hundred million dollars a few years ago), and a
full arsenal of IP-based voice, data, and e-commerce services, we see
significant upside to this forgotten next-gen telco.
Given the development of a Pacific Rim B2B portal, which is in a space of
unprecedented demand on the part of investors (e.g., see yesterday's ISP
acquisition and portal launch in India by STARTEC Global - STGC $27; STRONG
BUY - which resulted in a 100%+ move on record volume), we recommend investors
aggressively buy EGLO at current levels, which represent an estimated pro forma
diluted enterprise value of roughly $400MM, or 1.5-2x 2000E revenues. We
reiterate our BUY on EGLO. Our price target remains $12, which implies an
enterprise value of $1BN, or 4-5x pro forma 2000E revenues, well below the
valuations of other emerging international ISP/B2B peers.
+Kaufman Bros., L.P. makes a market in this security.
*Kaufman Bros., L.P. acted as an underwriter in a public offering of this
security.
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information contained herein has been obtained from sources believed to be
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thereon, are not guaranteed. Kaufman Bros., L.P., its affiliates and
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