GO internet’s (GO’s) FY15 results reflect the steady expansion of its network. FY16 has started somewhat slower and we now anticipate a more measured network expansion ahead of the funding from its majority shareholder and the proposed capital increase. We reduce our forecasts and valuation accordingly.
Revenues of €5.1m (vs our forecast of €5.5m) and EBITDA of €2.0m (forecast €2.2m) were short of expectations but still increased 32% and 41% respectively. There were 8,238 net subscriber additions and we calculate an ARPU of €14.2 per month, down slightly on FY14, affected by price discounting in the latter months of the year. Operational leverage is starting to show, with 60% of each new €1 revenue converting to EBITDA and 88% of this converted to operating cash in FY15. The group spent €4.5m on expanding its network coverage (higher than our forecast as the company took advantage of early payment discounts), resulting in a net cash outflow in FY15 of €2.7m. Net debt increased to €5.5m (from €2.7m).
The rate of subscriber additions has slowed in FY16 so far, with 1,049 subscribers added in January and February, 37% below last year. This suggests GO is moderating marketing and network roll-out until it has secured additional funding. It has confirmed plans for a €4m capital increase and a €4m convertible bond, although the timing is not clear. In the meantime, GO’s majority shareholder, FC Gold, has issued a ‘Comfort Letter’ saying it will provide funding instalments up to €2m by 31 December 2016. In light of the slower pace of growth and lack of clarity on the timing of funding, we have reduced our forecasts to reflect a slower network expansion, reducing our year-end subscriber target, to 40k from 42k, and our FY16 and FY17 EBITDA by 10% and 17% respectively.
GO’s valuation is contingent on the pace of network expansion. Provided FC Gold honours its commitment (the nature of any guarantees has not been disclosed), GO should have sufficient funding to continue to invest in growth its current regions. Our base case DCF, which assumes this, returns a value of €3.4 per share (down from €4.4 previously). However, to accelerate the pace of its network roll-out or participate in the upcoming spectrum auctions that would enable expansion into new regions, additional funding is required – clarity regarding this is a key catalyst for the shares in the short term.
