Brokers' Views – FinnCap

In a dramatically titled note covering the telecoms and tech sectors, FinnCap sets out the parameters of what it calls ‘Apocalypse, phase II’. The broker sees this second phase as being characterised by lack of customer capital expenditure, which is likely to result in sector participants suffering ‘a loss of control as revenue patterns change’.

As ‘it is clear that some companies are closer to becoming operationally cash flow negative’, Finncap advises investors to avoid ‘overpriced’ COLT Telecom and indebted Redstone.

Reseller opportunities
Rather, investors should look for companies that can provide customers with savings. ‘There are therefore opportunities for the service resellers, and those who resell others’ networks (thus avoiding capex themselves) are in the best position,’ it argues.

Using such guidelines, the broker’s three main picks include Alternative Networks, down from 160p-plus to 113p, which has remained ‘unruffled by changing macro circumstances since float’, remains focused on shareholder returns and is a ‘buy up to 170p’. Maintel is once again focused on long-term contracted relationships and higher-margin revenues, enabling it to generate cash for shareholder returns. Expecting a ‘return to form’ and a dividend, the 78p shares are a buy and could reach 104p.

Last but by no means least is client company Spiritel, led by a ‘positive and hungry’ management team and trading on an ‘attractive’ forecast multiple of 3.5 at the current 0.7p share price, while also offering the possibility of acquisitions.