Esat Telecom is still being tipped as a good investment despite surprise in the market at the price it paid for Postgem/IOL. At £115 million (€146 million), Postgem was seen as an expensive buy, regardless of the upbeat comments of Esat chairman Denis O'Brien.
Davy Stockbrokers - Esat's own broker - says the deal makes the group the dominant player in both the residential and corporate ISP markets in Ireland while significantly increasing its presence in data.
Davy says the £115 million price tag equates to a multiple of 7.7 times annualised revenues. While this is higher than was first speculated, it compares favourably with the 8.2 times earnings recently offered by Concentric for ITG in Britain, in a similar deal, it says.
Davy predicts that the group will have net debt of around £311 million by year end, rising to £411 million in 2000.
The broker says Esat's stock value has risen by 7 per cent this year, but has underperformed its peers both in the fixed line and mobile markets. "The basket of CLEC stocks we look at covering the US and Europe, has risen by over 40 per cent this year on a median basis, while quoted mobile stocks are an equivalent 13 per cent," it says.
Davy says it continues to argue that the stock looks cheap, puts forward arguments that the fixed line side of the business may be undervalued and cites a multiple for Energis, another communications company.
It says that using such considerations could generate a share price of as much as $64 (€61.2). Esat's current share price is around $41. Its highest price over the last 12 months was $55.5. Its lowest was $21.
