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MetroNet is a Canadian CLEC that also trades on the NASDAQ under the symbol METNF. It's IPO was on 12/4/97 when 7.5MM shares were priced at $16.25 (the expected range was $14-$17) with Salomon Smith Barney as lead underwriter (#1 buy rating) and Bear Stearns as co-manager (also a #1 "buy" rating). Goldman Sachs recently initiated coverage as well with their "market outperform" (~#2) rating Relevant links Company homepage: metronet.ca metronet.ca Yahoo: chart- quote.yahoo.com full news- biz.yahoo.com analysis- quote.yahoo.com Recent press: ============ Investors Back MetroNet's Entry Into Local Cdn Phone Mkts By Scott Adams TORONTO (Dow Jones)--MetroNet Communications Corp.'s (METNF) Class B stock is up 26% from its December 1997 initial public offering price of C$23, as investors believe the company will succeed in the newly deregulated Canadian local phone service market. So far, three of the IPO's underwriters have initiated coverage of the stock, two of them in the U.S. Earlier this month, analyst James Henry of New York-based Bear Stearns & Co. placed a "buy" rating on the stock, with a 12-month stock price target of C$35. Salomon Smith Barney Holdings Inc. of the U.S. and RBC Dominion Securities Inc. in Canada have also issued positive reports on MetroNet. However, some Canadian analysts outside the underwriting group say the stock looks expensive. Calgary-based MetroNet is the first pure-play company in Canada to try to take advantage of the deregulated local telephone service market. The company plans to complete fiber-optic networks in 11 Canadian urban centers over the next two years to serve business and government customers. It will offer local phone and Internet service on its network, and team up with long-distance service partners. Customers will receive one bill for all services. It's a business that Henry forecasts will produce revenues of C$31.6 million for MetroNet in 1998, C$114.3 million in 1999 and C$241.1 million in 2000. He sees the company losing C$4.43 a share in 1998, C$5.79 a share in 1999 and C$4.58 in 2000, but being cash flow positive by 2000. He expects MetroNet to be profitable in 2003. Henry's C$35 stock price target is based on a discounted cash flow model for 2007. That year, he sees MetroNet having cash flow of C$16.32 a share and earning C$9.71 a share on revenues of C$1.3 billion. He points out that his 12-month target is conservative when measured against the valuation arrived at using methods typically employed for similar, U.S.-based companies. Such a valuation method, which looks at MetroNet's estimated gross property, plant and equipment value at the end of 1998, would support a stock price of C$45. MetroNet's Class B stock is currently trading at 28.90 in Toronto. James Henry of Bear Stearns & Co. said his stock price target for MetroNet Communications Corp. (METNF) is based on comparisons with similar U.S. companies. But in his discounted cash flow model, he discounted more for MetroNet than he would have for comparable U.S. companies, noting that MetroNet is an early-stage company compared with established U.S. players. Local phone services were deregulated in the U.S. at the beginning of 1996, and since then companies in that market have traded at high multiples because they are attractive takeover targets. Most recently, AT&T Corp. (T) said it would buy Teleport Communications Group Inc. (TCGI) for US$11.3 billion in stock. MetroNet chief financial officer Robert Bicksler said leading U.S. local service providers have gone for a premium of five to more than six times net property, plant and equipment value. But John Grandy, an analyst with Deacon Capital Corp. in Toronto, doesn't see the same takeover environment emerging in Canada. In the U.S., reglations are enforced state to state and have generally favored the old established phone companies, Grandy said. Because it's been difficult for a new player to establish itself, any player that does manage to get on its feet is valued highly. It has simply been easier to buy local market players at a high price than to start a new company, Grandy said. In Canada, regulations should make it easier to build a network and the Canadian Radio-television and Telcommunications Commission has vowed to make local phone service competitive nationally, Grandy said. "I think (MetroNet) is an expensive stock," Grandy said. MetroNet Communications Corp. (METNF) has a market capitalization of about C$725 million. One analyst, who asked not to be identified, compared MetroNet's market cap with that of Canadian long-distance telephone service provider Call-Net Enterprises Inc. (CNEBF), which has a market cap of about C$1 billion and reported revenue of C$668.8 million in the first nine months of 1997. MetroNet won't have comparable revenues until well into the next decade, the analyst said, adding that Call-Net's valuation has been suffering because of anticipated costs in starting local telecommunications service. Doug Cunningham, an analyst with Midland Walwyn Capital Inc., won't comment on MetroNet's stock, but does have a number of concerns about the future of competitive local phone service in Canada. Cunningham expects the established phone companies to cut local phone rates to business customers in urban cores by 30% this year, in an effort to preempt competition. He also points out that the U.S. has much larger, concentrated population centers, making it easier for firms there to provide local urban phone service. On the other hand, MetroNet chief financial officer Robert Bicksler points to the high gross margins a company can earn in owning a local fiber-optic telephone network. MetroNet can attain gross margins of about 65% for local service using its own network, compared with about 25% if it piggybacks on another firm's local network, Bicksler said. Similarly, Bear Stearns & Co analyst James Henry said MetroNet deserves a high valuation because it has physical network assets that will provide stable cash flow, compared with a long-distance provider that piggybacks on another carrier's lines. MetroNet also has the strategic advantage of being the first new Canadian company to enter the local phone service market following deregulation, Henry said, noting that other competitors, especially Canadian cable companies, will soon be on the scene. ==================== | ||||||||||||||
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