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Technology Stocks : Bonjour! Willkommen to CompleTel. (CLTL) -- Ignore unavailable to you. Want to Upgrade?

To: Teddy who wrote (14)	6/7/2000 6:56:00 AM
From: Teddy	Read Replies (1) \| Respond to of 17

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.