Manx Telecom — Worth listening out for clearSound

Manx Telecom — Worth listening out for clearSound

In September, Manx Telecom (MT) subsidiary Goshawk announced the launch of clearSound (MTcS), an innovative mobile phone service for people with hearing needs. Following positive feedback from test groups, MT has signed a deal with BT/EE to launch the Goshawk proposition on their UK networks and it intends invest £10m on the launch over the next three years. This has a five-year target to attract 20% of the three million people in the UK with moderate to severe hearing loss. The recent sell off of MT shares, exacerbated by UK small-cap weakness, has exposed good value in the stock, now at a high 30% P/E discount to its peers.

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Manx Telecom

Worth listening out for clearSound

Telecoms

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14 December 2018

Price

153p

Market cap

£176m

Share price graph

Share details

Code

MANX

Listing

AIM

Shares in issue

115.1m

Business description

Manx Telecom is the incumbent fixed and mobile telecom operator in the Isle of Man. The group’s high-speed fixed and mobile broadband systems cover more than 90% of households and MT targets providing FTTP services to 12% of homes by YE18. It has also built a successful data centre and global solutions. Future growth should be enhanced by its new multi-pronged innovation incubation programme.

Bull

Attractive IoM operating environment: low tax rates, highly entrepreneurial, stable economy, good regulatory climate, affluent population.

Offers highly defensive features of a fibre-rich broadband network, high EBITDA margins, strong dividend yield, and management with a strong track record.

Innovation focus via Vannin Ventures plus fast-paced fibre roll-out and transformation to boost growth.

Bear

Core telecom business is relatively low growth.

Data centre business negatively affected by reduced demand from the gaming industry.

AIM listing means lower level of regulatory oversight.

Analyst

Anna Bossong

+44 (0)20 3077 5737

In September, Manx Telecom (MT) subsidiary Goshawk announced the launch of clearSound (MTcS), an innovative mobile phone service for people with hearing needs. Following positive feedback from test groups, MT has signed a deal with BT/EE to launch the Goshawk proposition on their UK networks and it intends invest £10m on the launch over the next three years. This has a five-year target to attract 20% of the three million people in the UK with moderate to severe hearing loss. The recent sell off of MT shares, exacerbated by UK small-cap weakness, has exposed good value in the stock, now at a high 30% P/E discount to its peers.

MTcS: Well ahead of the competition

Conceptualised by the CEO of Goshawk who has hearing loss and developed by leading audiologists with patents pending for its advanced voice print technology, MTcS tests each customer’s hearing and delivers tailored audio content to their phones. This unique product embeds its technology in telecoms networks and compensates for the typical removal of 50–75% of audio content in mobile phone calls during transit. It also tailors the signal to the user’s needs. Many people with moderate to severe hearing loss do not use mobile phones due to poor audio quality and EU limits on mobile handset volume. Goshawk’s own studies show that two-thirds of respondents would be willing to pay £5 or more for access to the technology, which is substantial in comparison with the average EU mobile ARPU of €13–14/month. Added to the current high level of public confidence in EE’s network, this could translate into substantial demand for the mobile virtual network operator’s (MVNO) services.

Strong global solutions pipeline

By the end of 2018 MT will have completed a two-year transformation programme to reduce its cost base and develop more digital and cloud-based services. The group’s new international innovation arm, Vannin Ventures, has also created a pipeline of global solutions including e-SIMs, next-generation critical coverage using satellite technology and the MTcS hearing technology. The group is also rapidly rolling out fibre to the premises with household cover to grow from 6% to 12% in H218. We see this all providing a strong basis for future earnings growth.

Valuation: A good time to buy

MT’s shares have fallen in recent months due to UK small-cap weakness and poor H1 results caused by declines in international roaming rates. We see the stock as attractively rated at a 30% below-peer 2018 P/E of 11.5x, which does not reflect the group’s quality (margins, advanced network, strong economy) or its high yield.

Consensus estimates

Year
end

Revenue
(£m)

PBT
(£m)

EPS
(p)

DPS
(p)

EV/EBITDA (x)

P/E
(x)

Yield
(%)

12/16

80.6

15.6

13.7

10.9

8.6

11.2

7.1

12/17

81.1

14.5

13.8

11.4

8.8

11.1

7.5

12/18e

79.1

15.3

13.3

12.0

8.8

11.5

7.8

12/19e

80.0

15.7

13.9

12.6

8.6

11.0

8.2

Source: Thomson Reuters

EDISON QUICKVIEWS ARE NORMALLY ONE OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.

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United Kingdom

New York +1 646 653 7026

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10017, New York

US

Sydney +61 (0)2 8249 8342

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NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Disclaimer

General disclaimer and copyright

This report has been prepared and issued by Edison. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2018 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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