Platinum Communications is a small internet service provider based out of Alberta. They sell fixed base wireless internet to rural Albertans. There are a number of important qualitative advantages to this business.
- High speed internet has become a staple good, people need it
- Limited competition in rural areas gives Platinum pricing power.
- The government built Alberta Supernet provides fiber backhaul services1
- Fixed costs - once a tower is built, adding more users is inexpensive
- Cost of capital advantage - most of their competitors are mom and pop operations. This is analogous to the early days of the cable TV industry, and PCS is following a similar roll-up strategy as the Shaw family did decades ago, without the multi-voting stock and egregious insider pay packages.
The current share price of $0.085 gives a market capitalization of $5.5 milion, and their most recent 6 months EBITDA was $826k. Annualizing that EBITDA gives an annual value of $1.65 million. Long term debt net of current assets surplus over current liabilities is $2.0 million, for a total enterprise value of $7.5 million, and an EV/EBITDA of only 4.5x, low for a growing business.
The best way to value this business is by customer accounts. PCS has made numerous acquisitions, and have usually paid $1000 per customer for the customers and the assets to service them. This suggests their 11,000 customer business is worth at least $11M, which corresponds to $0.14 after debt. Platinum is probably worth more than the sum of its acquisitions as it gains scale and can leverage fixed investments and corporate overhead.
Disclosure: Long PCS.
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