Monday, 14 January 2008

PWK Gives Green Light For Project Runway

Pipe Networks (PWK) announced today that they have received sufficient revenue generating contracts to proceed with Project Runway. Project Runway is of course PWK's attempt to break up the 'gang of fours' stranglehold on Australian internet capacity by constructing a 6,900 km undersea cable system linking Sydney, to the communications hub of Guam with a spur connecting Madang, Papua New Guinea.

The project is scheduled to be completed by 2Q09 and the company expects to achieve positive cash recovery of the investment within 3 - 5 years. That means the company expects to generate more than $200m in approximately 4 years from the project.

Some back of the envelope calculations suggest that the company could be generating about $100m in revenue by FY10, and given their current NPAT margin of approximately 20%, NPAT of about $20m in 3 years time. That means the company could be generating more than 4 times the NPAT of FY07 by FY10. If that is the case the share price will more than look after itself.

Despite the $200m price tag of the project the company said that they do not expect it to impact previously released guidance of $7.0 - $7.4m NPAT for FY08 and in excess of $10m for FY09. Also they expect to keep their dividend policy the same as previously announced.

Another positive is the fact that the company does not see the need to raise additional capital at this time. However they will seek to extend their existing debt facility of more than $20m. This company is truly on an exciting growth path into the future, the biggest challenge going forward will be their ability to execute the project on time and within budget.