Telstra Corporation - TLS $5.22
Telstra has warned of falls in revenue growth and growth in earnings before interest and tax (EBIT) in the second half of 2001, to 1 per cent and 0 per cent respectively, and that this would reduce revenue growth and EBIT growth over the full year to 3 per cent and 5 per cent respectively. Telstra noted that a slowing economy, continuing price competition and market share loss would offset above-budget cost reductions.
Telstra's profit warning confirmed the market's view that risks are on the downside. While there have been some notable reductions in competition in the consumer market (the demise of One.Tel, for example), pricing pressures in the crucial corporate and SME segments remain intense. Competitors are taking some market share from Telstra and, more importantly, price discounting is reducing sector revenue growth against a backdrop of a slower economy.
The market sees three potential sources of profit growth: broadband, significant investment in Asia, and cost savings. Since Asian investment is likely to produce lower returns than Telstra currently earns, cost savings are essential for driving profit growth.
Consensus estimates for Telstra are forecasting flat profit in 2001 at $4.04 billion, increasing to $4.13 billion in 2002. Earnings per share is forecast at 31 cents for 2001 and 33 cents for 2002.
PowerTel Ltd - PWT $0.26
PowerTel expects to break even during the first half of next year. The company claims its customer base and revenues are increasing each quarter in the face of a downturn in the general telecommunications sector. Like its peers in the sector, PowerTel has been affected by a significant softening of demand, particularly through corporate customers deferring decisions to change or upgrade their telecommunications facilities.
The telco claims it is now a major provider of specialised and competitive broadband services to the corporate and wholesale markets. It offers clients a full range of voice, high-speed data, Internet and telecommunications solutions with CBD, metropolitan, local, inter-capital, national and international connectivity.
PowerTel has taken steps to reduce costs in areas that will not impact on customer service. Forecast capital expenditure will also be reduced in line with customer demand. It has completed its 2,400km fibre-optic network which connects the business centres along Australia's East Coast. In the first half of 2001, the company has signed deals with Nava Networks, eServ and Comindico.
In February 2001, PowerTel raised $145 million equity funding and put in place a $150 million debt facility in March. Sales for the full year to December 2000 were $35.5 million ($49.2 million in 1999) while the operating loss came in at $61.8 million ($38.4 million previously).
HPAL Ltd - HPX $2.10
HPAL Ltd is an outsourced services provider, specialising in business-to-business information and image management services. Approximately 80 per cent of HPAL's revenues are derived from long-term contracts, reflecting the security of future income streams. HPAL's main businesses include:
Essential mail. This incorporates the production and distribution of cashflow-critical documents such as customer billing, statutory and financial information, fines, insurance policy renewals and statutory notices. The division represents 60 per cent of the company's revenue with volumes growing at 7 per cent per annum. HPAL is a market leader in this area with 40 per cent market share.
Major communications projects. HPAL undertakes major communications projects incorporating logistics services such as initial public offerings, demutualisations, elections and ballots. Past projects have included AMP's demutualisation, Boral's annual reports, the Commonwealth Bank's share offer and TAB Queensland's share offer.
Imaging services. HPAL processes about one-third of all documents industrially imaged in Australia. Services include document scanning; computer output to microfilm and laser disc; image storage and management; provision of the InterView Enterprise image viewing; and retrieval software. Imaging services clients include TNT and SOCOG.
For the year to December 2000, HPAL reported a net profit for the 2000 financial year of $9.2 million. Profits on the de-consolidation of e-Bill and IPO costs of $0.9 million resulted in a net abnormal profit of $0.4 million.
Revenue for the year was $149.1 million, 12.5 per cent above the 1999 figures (for the underlying business), and 3.9 per cent above the prospectus forecast. Net profit after tax was 3.3 per cent above the prospectus forecast.
The net result was driven by growth in all business divisions, particularly imaging services, which grew by 27 per cent. Major projects such as the NRMA demutualisation also boosted earnings.
Pineapplehead Ltd - PNH $0.47
Last month, sports broadcast technology company Pineapplehead announced a licensing agreement with its fourth largest shareholder, Princeton Video Image, to develop and sell virtual video technology in Australia and New Zealand. The technology allows a television broadcaster to insert advertising, player information, graphics and animation into live or replay sports programs. It could be used to provide different advertisements to different markets; for example, a Bundaberg Rum ad could be shown in Australia while a Tesco or British Telecom ad could be shown in Britain.
Also last month, Pineapplehead gobbled up the company that was behind the special effects in The Matrix and Moulin Rouge, Melbourne-based Future Reality, more than doubling Pineapplehead's annual revenue to $20 million.
Pineapplehead distributes digital video editing products, develops software that produces sports graphics for outside TV broadcasts, and provides an online ratings program for racehorses for every major race meeting in Australia.
For the six months to December 31, Pineapplehead reported a 52 per cent revenue rise to $4.1 million. This was achieved by continued growth in distribution sales of video technology hardware and software and the early build-up in revenues from sports broadcasting products.
An overall loss of $194,000 before and after tax was recorded after taking into account higher depreciation and amortisation charges and the write-off of software development costs. Pineapplehead had $8.1 million in cash as of February 28.
Quadtel Ltd - QTL $0.028
Quadtel specialises in providing high-speed broadband data and Internet access solutions to telecommunications carriers and Internet service providers. It has a relationship with global ADSL (asymmetric digital subscriber line) technology company Alcatel, and provides it with broadband access products and associated services.
Quadtel was selected as the first ADSL product supplier for Telstra's ADSL trials. It also has an alliance with Netcomm, under which it is the preferred supplier to Netcomm's Carrier division and is a major distributor of Netcomm products, including DSL Customer Premises Equipment, in Australia and the Asia-Pacific.
Through IT retail distributor Marketing Results, Quadtel also provides broadband products and software to a variety of retailers, including Harvey Norman and Dick Smith. Marketing Results recently signed a republishing deal with leading US-based speech recognition software provider Lernout & Hauspie.
Quadtel is developing the broadband software and content side of its business so that it will be able to provide complete broadband solutions, encompassing hardware, software and content. It is in the process of launching "QBlaze", an online guide to broadband services and technology, in partnership with major content providers. Quadtel has also partnered with Videocom to provide high-speed videoconferencing.
For the half-year to December 2000, the company reported a 33 per cent increase in revenue to $2.9 million and a $2.6 million operating loss.
NetComm Ltd - NTC $0.07
Sydney telecommunications carrier NetComm claims it is on track with its plans to expand from a communications device vendor into a full-service provider using a broadband DSL network. This will allow the company to provide voice, video and data services, as well as communications devices, particularly in the SME market.
NetComm designs, manufactures and distributes communications devices, including analog modems, internet access devices and Linux-based integrated access solutions. It is also involved in the R&D of ADSL broadband products along with the distribution of selected communications software products. NetComm has selected Cisco Systems as the key technology partner for the rollout of its national broadband network.
Its products are released under either the NetComm or Banksia brand names and it mainly markets its products in Australia, Europe and Asia. NetComm's Customer Premises Equipment product range is marketed by Quadtel, a telecommunications service provider.
Since obtaining a carrier licence last October, NetComm has signed interconnection agreements with Telstra and negotiated key supply contracts. The company has also commenced the construction and commissioning of its first four exchanges in Sydney's North Shore.
Sales for the half-year to December 2000 were down 27 per cent to $8.7 million while net profit after abnormals was up 406 per cent to $294,000. Cash stood at $308,000.