VelaTel Global Communications (VELA) Update Part 1: The Road to $100 million+ 2012 Revenues and Positive EBITDA is Almost Complete (one additional unspecified LOI contract to close in early 2012).<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
· .40 a share to .80 a share 2012 value @ 800MM outstanding shares on simple multiple of revenues valuation
· VELA continues to be MOST undervalued 4G-LTE carrier in NBT Research Universe—6-10X upside from current public market valuation in 2012
NBT Equities Research conducted in-depth interviews with VelaTel’s George Alvarez, CEO and Colin Tay, President, the week of Dec 20-23 on the extensive set of new acquisitions and business development deals concluded over the last 50 business days.
Each of these fully consolidating transactions were in close association with its worldwide 4G-LTE network development partnership with ZTE Corporation, the world’s fifth largest major telecom equipment/handset manufacturer. ()
We will publish this report in 3 parts over the next week: Part 1 is an update on the new B2B 4G-LTE networks in China; Part 2 on the new acquisitions in the Balkans/East Europe; 3 Update on existing operations and progress on the resolution of Chinacomm litigation.
The $100 million+ 2012 Revenues and Positive EBITDA Transformation of VelaTel Is Almost Complete: .40 to .80 cent valuation in 2012 based on revenue multiple
The most significant news to report from VelaTel is the MOST important news for shareholders and prospective investors in the world’s only pure-play, emerging market publicly traded 4G-LTE carrier: NBT’s quick back-of-the-envelope calculation of consolidating 2012 revenues forecast revenues from VelaTel’s existing consolidating subsidiaries:
1) PeruSat (Go Movil): the 4G LTE network currently operating in 7 regions in Peru (with a deal on the table for additional 4G spectrum in the capital Lima—with over 7 million population)
2) Golden Bridge Network: a dual mode 4G TD-LTE network beginning operations its Fujian wireless broadband access (WBA) project with two major cities in early 2012: Fuzhou, the capital city of Fujian province, and Xiamen, one of the four special economic zones in PRC. Phase 2 of the Fujian WBA project will expand to seven additional cities (Guangzhou, Zhang Zhou, Longyan, Putian, Sanming, Nanping and Ningde) within the next 8 months.
3) Sino Crossing Ltd: 34,000 kilometer fiber-optic network connecting 90% of China’s population with over 14k of fiber “lit” and beginning transportation and backhaul operations in early 2012
combined with the new set of acquisitions (including one final unspecified wireless services acquisition under LOI contract scheduled to close early January)
4) China Aerospace: A nationwide 4G TD-LTE network and business development agreement with Aerostrong Company Limited. Aerostrong is a subsidiary of the $10 billion+ (annual revenue) China Aerospace Science and Technology Group (CASC), a state-owned company in the People’s Republic of China (PRC) with 2,000+ operating subsidiaries nationwide and over 150,000 employees
5) NGSN: A nationwide 4G TD-LTE network and business development agreement with New Generation Special Network Communication Technology Co., Ltd. (NGSN) a $billion+ state-owned company in the People’s Republic of China (PRC).
6) Serbia: Acquisition of 51% controlling interest (expandable to 75%) in Kerseyco Trading Limited and its Serbian operating subsidiary, VeratNet. Verat is one of the leading telecommunications operator and internet service providers in Serbia, offering a full range of telecommunication services, including ADSL broadband service nationwide and wireless broadband access (WBA) in three cities where it holds 42 MHZ of 4G TD-LTE compatible 3.5Ghz radio frequency licenses, including Belgrade, Serbia’s capital and largest city (population approximately 1.6 million).
7) Croatia and Montenegro: Acquisition of 75% controlling interest in Herlong Investments Limited and its operating subsidiaries, Novi-Net, d.o.o. and Montenegro Connect, d.o.o. The Republic of Croatia granted Novi-Net a nationwide license of 42 MHz of radio frequency spectrum in the 3.5 GHz bandwidth to serve Croatia’s 4.5 million citizens. Since 2006, Novi-Net has been providing WBA in five counties in northern Croatia under a regional license. Novi-Net currently owns a data center, a network core and 11 base transceiver stations (BTS) to provide WBA and related services to approximately 1,500 subscribers.
Montenegro Connect holds a similar nationwide license in Montenegro, also covering 40 MHz in the 3.5 GHz bandwidth. Montenegro’s year round population stands at 625,000, but it enjoys over 1 million mostly affluent tourist visitors per year. Montenegro Connect is a “greenfield” operation with two BTS installed for testing purposes and no commercial operations or subscriber base.
8) Acquisition of controlling interest in an unspecified wireless services operation (currently under LOI)
The combined set of transactions brings our VelaTel 2012 operating revenues forecast to well over $100,000,000 with POSITIVE Ebitda for the fiscal year.
Our calculation of how MUCH forecasted EBITDA will come from the operational pro-formas forecasts as released by VelaTel in the coming weeks and months.
But the main take aways from our research and interviews concerning the recent acquisitions and outstanding LOIs/purchase contracts is
a) that the transformation of VelaTel from single minority share operator of a 4G LTE network in mainland China to 100% consolidating multi-continent green and brownfield owner/developer/operator of lowest cost 4G TD-LTE provider networks is now COMPLETE—we call this transformation VelaTel 3.0
b) $100,000,000+ of combined 2012 revenues and POSITVE cash flow is the most likely case scenario for VelaTel when all the dust settles and pro-formas revealed on new acquisitions and existing operations.
c) Considering the current market capitalization around $50MM, VelaTel continues to be the MOST undervalued, publicly traded pure-play 4G LTE carrier in the world.
A $300 million market cap or .37-.40 per share is the most conservation 2012 valuation if you simply take the sum-of-the-parts private market valuation of the 2012 operations.
The MOST conservative multiple of revenue valuation of 5 times revenues (sum-of-the-parts valuation), and reducing that valuation for the various equity ownership positions FOR that revenue (@60% all in assuming that 24% of the equity in non-China 4G LTE carriers is sold to outside investors) and the most conservative valuation we get is roughly $300,000,000 in 2012.
Use 800,000,000 shares outstanding after all the dust settles at that’s a .37-.40 a share valuation based on 2012 revenues. Use a 10X revenues multiple for greenfield 4G carrier (for a 100% growth a year 4G LTE carrier that would be more normal) and you have 75-.80 a share in 2012 value.
Double that revenue base on just existing operations for 2013 (which is an erroneous assumption as we KNOW for fact that the deal makers at VelaTel are pursuing numerous additional spectrum/development deals in South America, India, Russia, South East Asia and the Caribbean) and you get to @$1-$2 per share in core operating value for the combined assets (based on the simple net revenues multiple).
As we enter 2012, with the horrific end-of-year tax selling concluded, we fully expect VelaTel shares to return to a valuation that reflects the true private market value of its combined assets. As total subscribers crosses the 50,000 mark we will see both sell-side and buy-side wireless broadband and carrier analysts begin coverage of VelaTel as the world’s only publicly traded, pure-play 4G LTE carrier specializing in high growth emerging market 4G networks.
Part I: Interview with Colin Tay on the CASC and NGSN Network Development Deals
Of the two China B2B 4G-LTE network development deals, the China Aerospace deal is by far the largest and most potentially valuable to VelaTel. First of all VELA retains 75% of the revenue and equity from the operations.
Second of all, China Aerospace (CASC) is a huge $10 billion+ operation with a premier reputation in China for applied technology operations. It is not an exaggeration to say that ALL public and private enterprises seek to associate with CASC.
According to VELA President Colin Tay, the “First priority with the China Aerospace (CA) will be to upgrade and increase the capacity and coverage of their intranet or internal non restricted networks at their dozens of campuses and their 2000 subsidiaries including taking over and managing their IDCs (data centers) and NOCs (network operating centers).
Just the CASC employees alone are 150,000+. The existing revenues we inherit to our network in @$23MM in 2012…that is before we add ANY additional services.
The next phase is to build, manage and support CASC fully in all their provincial and nationwide State projects such as traffic control network for traffic violation management, tracking of vehicles, public and cargo transport, cities/schools/universities/public areas security surveillance network and any other State mandated special networks utilizing 4G TD-LTE wireless technology etc. (All these State mandated projects are considered “special projects”).
These special projects will add tens of $millions in annual deployment and on-going services revenues to our CASC joint venture—100% consolidating to the VelaTel income statement.
Due to the China Aerospace brand name and the influence it wields, most provinces and cities wants to engage CA to build and manage infrastructure projects in their ward both for the prestige and also the influence they can bring to the province or city. CA will then bring us in to build and manage such networks which in turn they will invoice the provinces or cities for the services and we get paid by CA.
Working under the China Aerospace is more than prestige for VelaTel—it means we take ZERO financial risk on these projects—key issue in China. CA pays VelaTel for all network deployment and on-going management services: they are a $10 billion+ revenue state owned enterprise with $billion+ in profit and a mandate by China’s 5 year plan 2010-2015 to expand broadband wireless services and functionality throughout mainland China.
Where possible, ALL of the data transport and backhaul will be provided by our Sino Crossing fiber network. In the case where Sino provides such service, VelaTel will retain the 25% of gross revenues usually paid out for transport and backhaul.
NBT Net: We can easily see VELA’s CASC network operation exceed $100 million in revenue at 25%+ margins by 2013.
NGSN: is a smaller deal constructed under similar structure as the CASC network but first phase priority will be on building a private network for the Agricultural and commodity sector including location based services (LBS).
According to Tay “The first project on the mandate is to build and operate a nationwide wireless electronic trading platform for commodities similar to the Chicago Mercantile Exchange. (CME).
Next phase, VelaTel will also build 4G wireless data only network for the public in the north east regions in China such as Heilongjiang province, Sichuan province, Chongqing province etc. This network will address a population of over 100 million—and be the first 4G-LTE network available to most of the areas.
All the networks will be build using 1800, 800 and 3.5GHZ spectrum and TD-LTE equipment built and financed by ZTE. The spectrum needed will be applied by our partners solely for these State mandated projects. Revenues will come from the State companies, public institutions and NGSN Mother Company.
Where possible, ALL of the data transport and backhaul will be provided by our Sino Crossing fiber network. In the case where Sino provides such service, VelaTel will retain the 25% of gross revenues usually paid out for transport and backhaul.”