Kim Eng on Global Voice

GV will possess a comprehensive fiber optic network
Global Voice Group (GV) has announced that it is buying a long-haul
intercity fibre network across Europe from Viatel, in order to interconnect
its existing metropolitan networks. This will give GV one of the largest
and most technically advanced fiber optic Metropolitan and Inter-city
networks in Europe. The acquisition will enable GV to generate
additional revenues arising from the additional business products and
reduced costs through the operational synergies from the combined
networks.
Long-haul interconnectivity further enhances GV’s growth
This additional long haul network capacity enhances the total value
proposition that GV can offer to clients. This applies across all of GV’s
existing business solutions i.e. Network Services, Business Continuity
Services and infrastructure. The enhanced network also fits in very well
and will accelerate GV’s expected revenue growth from bandwidthhogging
services such as broadband adoption, corporate VoIP, WIMAX,
3G applications and remote realtime data backup. Pro-forma forecast
indicates a 38% upward adjustment to our FY2007 net profit forecast
based solely on this deal.
Asset backing further enhanced, and supports share price
Similar to GV’s own network, Viatel’s long-haul network was acquired at
fire sale prices following the dotcom bust. As a result, GV was similarly
able to secure attractive pricing on this asset as well. Using comparable
peers as a benchmark, we estimate GV’s new NAV could potentially be
worth Euro 577m, or $0.479 per share, on the back of this deal. This
compares to our metropolitan network’s standalone valuation of S$0.365
per share.
Fair value S$0.27/share; Buy recommended
We are not changing our forecasts and price target of S$0.27 at the present
moment, as the deal will be completed only at end-March. We had previously
valued GV’s share price at S$0.27 from an operational viewpoint, with
valuation of about Euro 350m using a sum-of-parts approach. However, we
believe there is a strong potential for this target to be raised as we, and the
market, digest the full advantages of this acquisition. We maintain our Buy
recommendation with target price of S$0.27.