Building a sustainable telecoms business is not cheap work, as investors in CityFibre (CITY) will attest. Connecting each new customer to the network costs the telecoms group roughly £600,000, while a larger-scale public sector project can absorb up to £3m of cash. The good news is that once the customer is connected, ongoing operational expenditure is very low. That’s why CityFibre continues to generate gross margins above 90 per cent on all its new business.
But unfortunately the number of customers connected to the group’s network fell below expectations in the reported period. The vast majority of the 273 newly connected premises were smaller-scale clients, meaning organic revenue growth slowed to 36 per cent, from 60 per cent in the first half of 2016. Moreover, the group has struggled to sign up as many new customers as it did in previous years, something chief executive Greg Mesch attributes to the thinning number of cities to expand into. Just 712 new contracts were added to the pipeline in the period, compared with 1,782 (excluding those acquired with KCom) in the previous comparable period.
Two big public sector contracts have slipped into 2018, leading FinnCap to cut its adjusted cash profit forecast from £8.3m to £5.1m for the year to December 2017. The broker expects pre-tax losses of £8.1m, giving a loss per share 1.3p (losses of £8.5m and 1.3p in 2016).
| CITYFIBRE (CITY) | ||||
| ORD PRICE: | 40p | MARKET VALUE: | £250m | |
| TOUCH: | 39-40p | 12-MONTH HIGH / LOW: | 71p | 40p |
| DIVIDEND YIELD: | NIL | PE RATIO: | NA | |
| NET ASSET VALUE: | 16.3p | NET DEBT: | 56% | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2016 | 6.6 | -7.5 | -3.0 | nil |
| 2017 | 9.0 | -5.9 | -2.0 | nil |
| % change | +36 | - | - | - |
| Ex-div: | na | |||
| Payment: | na |
