THUS on the Prowl
After being spurned by Energis plc (OTC: ENGSY), U.K. alternative operator (London: THUS) is upbeat about its financials, and still on the lookout for an acquisition target.
In a pre-close trading update ahead of its first-half results on Nov. 21, THUS says its operating losses will be "significantly reduced" compared with last year and growth has been in line with expectations "despite challenging trading conditions." (See THUS Gives Trading Update.) In a conference call with analysts, chief executive William Allan noted that pricing remains "very aggressive" in the U.K. market -- so much so that no one wins.
"We believe the U.K. market would benefit from consolidation and a rational market structure because so far no alternative carrier in the U.K. has returned its cost of capital," he said. He reckons "THUS is the closest to doing so," but a purchase could make that happen faster.
"We do believe our business model can return its cost of capital by organic growth but we have said we need to roughly double our scale to do so, and if we can find a sensible acquisition that creates value for our shareholders by accelerating our business performance and yet maintain our strategic intent then we will certainly look at opportunities to do that."
The most likely candidates include rivals and . THUS put in a last-minute bid for Energis last month, but the operator instead chose (NYSE: CWP), the U.K.’s second largest operator after (NYSE: BT; London: BTA). (See THUS, C&W Clash Over Energis and C&W Wins Over Energis.)
A successful bid would have given THUS that boost in scale, but Allan maintains THUS isn’t bitter. "We’re happy about that outcome for a number of reasons," he says. One, an "aggressive" competitor has been taken out of the market; two, C&W splashed some of its cash resources and will have to focus on integrating Energis; and three, THUS stands to benefit from customer churn from the companies during that rationalization period.
"I have no regrets about Energis; it’s actually been a great morale booster for our staff and customers and prospects. It’s also shown that we have the ability to raise the firepower to look at scale-transforming acquisitions that would add value to our shareholders. It certainly shows we’re alive and well and we’re certainly very confident about our service, our prospects, and capability in the market."
THUS expects an upturn in business during the second half of the fiscal year, both from existing contract expansion and new customers, to reach positive EBIT. Like its competitors, it's seeing momentum shift from legacy to next-generation services, and has been launching new products to adapt. (See THUS Intros Carrier SIP and THUS Announces IP VPN Plans.)
CFO John Maguire noted demand for IP/MPLS in particular, "which in previous periods was an interesting technological novelty but is now becoming a mainstream purchase for corporations in the United Kingdom."
Maguire says the company expects to report 5 percent revenue growth for the first half and pointed to consensus analysts' estimates of £370 million to £380 million in revenues for the full fiscal year -- "we remain comfortable with those numbers."
THUS's shares were up 0.25 pence (1.79%) to 14.25 pence in mid-morning trading on the London Stock Exchange, where they remained into the afternoon.
— Nicole Willing, Reporter, Light Reading