Investing in telecommunications small caps can be a leap of faith07.04.2016

macquarie-telecom-investment

The past few years have been tough for Macquarie Telecom ASX, the Australian telecommunications company founded by the Tudehope brothers in 1992. Aidan and David Tudehope, who own about 60% of the company, spent $120million on data centres converting their business to a cloud-based model (investing in data centres with colossal servers and air-conditioners).

It was a big risk and the Macquarie Telecom share price plummeted during the transition, making it hard to see how they were going to come out the other side.

 

The lows and highs of Macquarie Telecom ASX

In 2011 they had shares as high as $12.50 which tanked to as low as $4.56 in mid 2014. One particular value fund manager lost his nerve and sold his very large position at $5.15 in early 2015. Had he stayed on, he would have enjoyed a steady comeback from Macquarie Telecom ASX.

 

The upswing of the Macquarie Telecom investment

Macquarie Telecom currently has a share price of $9, shooting past our predicted $5 which was achieved by signing a contract with Federal Government contracting Mac Tel with 42% of the total internet and email cyber security measures. Therefore, it is entirely feasible that their 25% dividend which puts their stock on yield of just under 6%, is maintainable.

 

New Hope For Telecommunications small caps

Unlike competitors Vocus Communications who consolidated following their $3billion merger with M2 Communications, Mac Tel is still going it alone. Managing director David Tudehope says the expansion is indebted to their Net promoter score (NPS), which measures customer experience based on the question “Would you recommend Mac Tel’s product to a friend or colleague based on your experience?” They now brag the highest NPS measure of any telco, bank or power company in Australia.

When we asked David Tudehope about the implications of the NPS score he said that customers with a high score “are more likely to stay with a supplier, more likely to buy more, more likely to refer a friend.” He also notes that “happy customers pay their bills faster”, which is good news for all involved.

About the Author

Richard Hemming

Investment analyst and Editor of Under the Radar Report

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