PWK - firing on all cylinders

Yesterday Pipe Networks (PWK) announced that business is booming recording their most successful sales quarter on record for 4Q07. PWK launched their Intercapital transmission product in May and in just 2 months it is achieving breakeven returns with more than 80% spare capacity still on the intercapital network.

New Sales of Pipe's Dark Fibre product continues to perform strongly with new contracted recurring revenue at an all time high. Most of the contracts signed this quarter were for 3 to 5 years with ramp up periods extending over the next 6 to 18 months. No financial impact will be felt in the FY07 with some impact in FY08 and the full impact in FY09.

Also PWK is finalising contracts for their new Brisbane-based data centre launched just 2 weeks ago, which will secure almost 50% of the available datacentre space. Managing Director Bevan Slattery stated:

"We forecast the facility should be profitable within 6 months and begin to return good margins from that point forward"

PWK plans to add an extra 80% capacity to the new centre, to be completed by March 2008.

PWK also gave an update on project Runway, the plan to build an undersea cable linking Sydney to the main telecommunications hub in Guam. An announcement is expected on a vendor within 4 weeks and a final decision is expected on the project 4 weeks after that. Pipe had previously anticipated a final decision on the project by now however the company reported some delay as:

"various international company structural challenges took longer than expected to address." "These issues have now been largely resolved."

This is the biggest risk facing PWK at the moment. One of execution risk. Whilst the organic growth within the domestic business is very encouraging the real kicker will come from the successful execution of project Runway. At an estimated cost of $200 million if PWK can deliver their historical returns on capital of 20 -25% for this project it's not difficult to imagine what this would do for earnings over the medium to long term.

PWK's shares rose 8.9% on the back of the announcement.