Buy, sell, hold: Not just talk

By Jenny Ruth

Monday 1st November 2004

TeamTalk was founded in 1992 to compete against Telecom in the mobile radio market. After years of losses, in May 2001 it bought out Telecom's mobile radio business, FleetLink, with the blessing of the Commerce Commission. It has about 70% of the total market, through its two national networks (FleetLink and TeamTalk), with customers including TranzLink, Fonterra and Mainfreight. For businesses operating within defined geographic areas, such as taxi companies, it also offers its LocalNet brand. Newer income sources are EasyPlan, which provides finance to those who don't want to buy their own equipment, and AlarmLink, a service connecting burglar and other remote alarms to centralised monitoring centres.

THE NUMBERS:
The company almost went bust after its major shareholder, US venture capital firm IWC, filed for Chapter 11 bankruptcy protection in 1998. IWC had invested more than $30 million in TeamTalk but chief executive David Ware was able to buy back his company for just $1. Having chalked up losses of $8.3 million in the year ended June 1999, the company finally found another major shareholder in Active Equities, but it didn't turn a profit until after buying FleetLink. The company has thrived since. By June 30 this year, total tangible assets of $32.9 million were three times its $10.3 million net debt. TeamTalk first sold shares to the public in May at $1.75, with the price nearing $2.60 in late September.

MANAGEMENT:
TeamTalk is still led by founder Ware and a number of its senior staff have been with the company for years. Finance manager Russell Kelling joined in 1997 while commercial manager Kevin Brown came aboard in 1995. Chief technology officer Brian Harding was previously at FleetLink.

STRATEGY:
TeamTalk's core business has limited growth prospects, although it does produce substantial cashflows. The company doesn't appear to face any competitive or technology threats. Any new entrant would face major Resource Management Act hurdles and a lack of radio frequencies - TeamTalk holds the licences to 70% of the available bands. While the cellular operators are its major rivals, mobile radio offers significant advantages for niche customers such as the emergency services: it has better coverage, it's cheaper and customers can connect instantly. Average revenue per unit for TeamTalk is about $33 a month compared with more than $70 for post-paid cellular. Ware also wants to expand. The launch of AlarmLink is one example and the company is also considering acquisitions. One thing's for sure, the float wasn't about raising capital. TeamTalk has paid shareholders half the $6 million raised in the IPO in the June-year, and plans to return at least the same amount in 2004 dividends.

RECENT PERFORMANCE:
TeamTalk's float and debut on the NZX was a dream run of an IPO. Three weeks after its shares began trading, the company revealed it expected to earn more than $400,000 over its prospectus forecast of $2.09 million for the year ended June 30. It reported in August an even better result, with net earnings of $2.62 million. The company also paid a 9 cents a share final dividend compared with the forecast 7.5 cents, bringing the total post-float payout to 16.5 cents and promises the same amount this year. TeamTalk also said that profit for the year ending June 30, 2005 "will be in line" with this year, up from the forecast $2.43 million.

TIPS:
Forsyth Barr, which managed the IPO, values the stock at $2.60 so at current levels, it recommends investors "accumulate" the shares (Unlimited reads this as being a lukewarm "buy"). ABN Amro Craigs values the stock at $2.98 and is recommending investors buy the shares.

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