Acquisitions have seen Daisy become a major player in 2009.
We saw a lot of action amongst small telecommunications companies early in the noughties, during the high tech boom when any company that owned a phone could be plugged as the next great entrepreneur and float for gazillions of pounds. But after the bust, what was left of the small ones went rather quiet.
But now, the telecoms market is becoming interesting again, and acquisitions this year have seen the formation of a relative newcomer to the market, in the shape of Daisy Telecommunications, a wholly-owned subsidiary of Daisy Group (LSE: DAY).
Reverse takeover
Daisy as it exists today came into being in July through a reverse takeover of Freedom4 Group, funded by an AIM placing. The new company took on the Daisy Group name and kept its chief executive, Matthew Riley. Then a month later, in August, Daisy bought out the telecom division of Redstone (LSE: RED), itself a former darling of the old boom days.
On Monday, the newly combined company released its interim results for the nine months ending 30 September. But before we take a look at the numbers, what does Daisy do today?
A quick look at Daisy's web site shows a company that looks suspiciously like my current favourite telecoms company, Telecom Plus (LSE: TEP), with the main exception being that Daisy is focused on business customers (whereas Telecom Plus targets both residential customers and businesses). Daisy provides a full package of telecommunications services, including fixed-line and mobile telephony, and broadband internet, and also acts as a utilities consultant for the supply of gas, water and electricity.
Tricky figures
Anyway, what of those results?
Well, after a year of major restructuring, it's hard to get anything meaningful from one set of interim results. But the company reported revenues from continuing operations of £31m and EBITDA of £1.4m, leading to a pre-tax loss of £2.1m. On the face of it, that might not look great, but everything now depends on the new acquisitions. Matthew Riley told us that Daisy is performing in line with market expectations for the 15-month period to March 2010, and is comfortable with expectations for the following year of £225m in revenues and £37m EBITDA.
Before I say anything about what I like, I'll tell you what I don't like about Daisy as an investment. For me, it's the uncertainty and risk. The company is currently loss-making, and until we see a profitable full-year, it will be very difficult to put a valuation on it. If Daisy does indeed turn over £225m in the year ending 2011, that'll put it on a prospective Price to Sales ratio (PSR) of a meagre 1.1, which is fairly low by the usual standards of profitable companies. But that mooted £225m is still a long way away, the actual earnings per share it might turn into is anyone's guess, and a lot could happen before then, in both the telecoms sector and the overall economy.
And after the high-tech boom and bust, I also have a deep-seated aversion to small start-up telecoms companies, and I still have this gut feel that the big boys, like BT Group (LSE: BT-A), should be able apply the economies of scale that they are purported to have at their disposal, and turn up the heat on the small fish.
Small ones are more efficient
But BT has shown scant evidence that it does indeed enjoy such economies of scale, and it really does look as if the smaller and nimbler companies can operate more efficiently, at least at the small to medium end of the market. If they can provide good customer service (and there is every indication that companies like Daisy and Telecom Plus are indeed very customer-focused) I can see them attracting a growing loyal customer base.
And something else I like about Daisy is CEO Matthew Riley himself, and his story of building the company from scratch.
Daisy might well turn out, in a few years time, to have been a bargain at today's price of around 96p. But being a bit more risk-averse these days, it think my money is going to stay with Telecom Plus, which is already making good profits and paying a nice dividend, on turnover that's already higher than Daisy's 2011 forecast.
More from Alan Oscroft:
> Alan owns shares in Telecom Plus.
