PWK FY07 result

Pipe Networks (PWK) reported NPAT of $4.8m for FY07 meeting their previously announced forecast range of between $4.6 - $4.9m. The result represents a 70% increase from FY06.


As can be seen from the results summary above there were no major surprises. every line coming in very close to forecast. One surprise was the declaration of a final $0.05 dividend.

PWK strengthened their balance sheet announcing that subsequent to balance date that they had paid down their long term debt facility of $7m on July 9th.

The company expanded its national fibre optic network from 556 kilometres of cable at June 2006 to over 869 kilometres at June 2007.


FY08 guidance

Management gave guidance for FY08 of between 45 - 50% growth in NPAT. The Company expects revenue in excess of $30m in FY08, 80 - 85% of which is recurring, up from 68% in FY07.

That puts forecast NPAT for FY08 in the range of $7.0 - $7.2m. Accordingly I have upgraded my previous forecast FY08 NPAT of $6.5m by 7.3% to $7.0m.


Project Runway update

In a separate release the company updated the market on project Runway. The Board of Directors has selected Tyco Telecommunications, a subsidiary of Tyco Electronics (TEL) as preferred supplier for the cable system.

Management was keeping tight lipped on the cost however said that Tyco has committed to a completion date of end of 4Q08 enabling PIPE Networks to interconnect and provision customers in 1Q09 as previously announced.

The company reiterated their investment philosophy of not proceeding with the project without firm commitments of sufficient final revenue generating contracts. The company expects to announce a final decision on the project in September.

If the company does proceed with the project you can forget about the forecasts for FY08 above. Project Runway is expected to cost between $180- $200m thus it would drastically alter the earnings profile of PWK in future years.

PWK shares have continued to perform strongly as shown below. The current price represents a significant premium to it's intrinsic value based on the forecasts above.

Whilst the company's core business continues to perform strongly clearly the market is pricing in a green light for the go ahead on project Runway. Successful execution of the project is the greatest challenge for the company in the medium term.