v2 Report
ZIN Zintel Group Limited

Commentary: Zintel Group is a telecommunications company that operates in the New Zealand and Australian markets, it has some fairly strong financials however the main thing discounting the price is concerns over future growth and the long term viability of the business model. "Zintel's two businesses, Communications and Enterprise, provide businesses with everything from Toll free services to complete state of the art Ericsson phone systems. Established in 1995 and listed on the NZAX in November 2003, Zintel now employs over 120 staff with offices in Auckland, Sydney, Wellington, Christchurch and Dunedin." (AGM CEO address)

ZIN has made some investments in recent times including the acquisition of the customer base of Concert Telecom in Sydney, Australia - which cost AUD 980 000, and apparently will immediately contribute to the bottom line. Also in recent times ARC, WCC, and mighty river power have become customers of ZIN. There is also pressure and potential opportunities stemming from regulatory changes in the industry. Going forward ZIN seeks to build new services and products from current activities and R&D, partnering with complementary organisations, and potential acquisitions.

Financially NPAT, while a positive figure, was down 16% year on year, stemming from slightly lower revenues. Accordingly the ROE figure was down, yet remained above 25% - reflecting the low capital requirements of the business model. Net profit margin was also down from previous years. Liquidity was very strong with a conservative balance sheet (with little requirement for debt funding under the current model...) and large cash reserves - which grew by 1.5m. 

The stock price has been on the decline over the past year reflecting concerns about the company's ability to maintain past levels of profitability and the long-term viability of the business model i.e. the ability to grow revenues. Thus valuation ratios are currently sitting at low levels, with an EBITDA multiple of 5.7 and PE of 7.3 and dividend yield of almost 9%. Certainly it looks like a good value proposition, but where's the growth? This company needs to get the new products or services rolled out or get out there and make some acquisitions.

M&A
Zintel at FY 07 was sitting on 6.5m cash, with virtually nil borrowings, if you run some quick and dirty figures, with an interest rate of 10% and interest coverage ratio of 5 it could borrow say 7.5m; that's at least 14m of buying power... and there are 2 other listed companies with similar businesses that are sitting on EVs close to that figure. So one could definitely make an argument for putting on pressure to seek out acquisitions that make sense… even acquiring some non-related investments with positive NPVs would be a better use of the cash which appears to be sitting idle at the bank.

So looking forward you're basically relying on this company to make some breakthroughs in R&D and successfully roll out some new products, or to track down some positive NPV acquisitions in order to grow revenue and NPAT. If they can do this it should change the outlook in terms of future cash flows and hence up the DCF value and obviously bring back some pep to the stock price and maybe even turn around some of the currently low valuation ratios.

by Callum Thomas
1-September-2007

Website:  http://www.zintel.co.nz/

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Financials 
 

Statement of Financial Performance
	2007	2006	2005	2004
Revenue
Sales	39,704,000	40,460,000	35,267,000	39,845,000
Interest received	417,000	281,000	196,000	107,000
Other	-	-	-	-
Total Revenue	40,121,000	40,741,000	35,463,000	39,952,000
Expenses
Cost of sales	35,678,000	35,282,000	29,799,000	33,337,000
Other expenses	-	-	-	-
EBITDA	4,443,000	5,459,000	5,664,000	6,615,000
Depreciation	663,000	738,000	627,000	420,000
Amortisation	-	-	-	-
EBIT	3,780,000	4,721,000	5,037,000	6,195,000
Interest expense	35,000	3,000	-	23,000
Taxation	1,044,000	1,473,000	1,652,000	2,075,000
NPAT	2,701,000	3,245,000	3,385,000	4,097,000
Statement of Financial Position
	2007	2006	2005	2004
Assets
Current Assets
Bank and cash	6,581,000	5,111,000	3,992,000	2,741,000
Receivables	5,351,000	5,716,000	4,806,000	5,054,000
Inventory	-	-	1,085,000	1,164,000
Other	706,000	954,000	-	-
Total Current Assets	12,638,000	11,781,000	9,883,000	8,959,000
Non Current Assets
Property Plant & Equipment	1,265,000	1,384,000	1,414,000	1,155,000
Investments	-	-	-	-
Goodwill & Intangibles	-	-	-	-
Other	927,000	556,000	448,000	440,000
Total Non Current Assets	2,192,000	1,940,000	1,862,000	1,595,000
Total Assets	14,830,000	13,721,000	11,745,000	10,554,000
Liabilities
Current Liabilities
Payables	5,174,000	5,351,000	5,054,000	5,202,000
Short term borrowings	-	-	-	-
Other	-	-	-	-
Total Current Liabilities	5,174,000	5,351,000	5,054,000	5,202,000
Non Current Liabilities
Long-term Borrowings	-	-	-	-
Other	324,000	-	-	-
Total Non Current Liabilities	324,000	-	-	-
Total Liabilities	5,498,000	5,351,000	5,054,000	5,202,000
Net Assets	9,332,000	8,370,000	6,691,000	5,352,000
Statement of Cashflows
	2007	2006	2005	2004
Cash flows from operating activities
Operating revenues	39,648,000	40,144,000	35,682,000	40,203,000
Operating expenses	36,028,000	36,518,000	31,437,000	35,523,000
	3,620,000	3,626,000	4,245,000	4,680,000
Cash flows from investing activities
Inflows	371,000	20,000	14,000	-
Outflows	660,000	1,052,000	900,000	784,000
	(289,000)	(1,032,000)	(886,000)	(784,000)
Cash flows from financing activities
Inflows	-	194,000	-	203,000
Outflows	1,757,000	1,760,000	2,046,000	2,474,000
	(1,757,000)	(1,566,000)	(2,046,000)	(2,271,000)
Net Increase (decrease)	1,574,000	1,028,000	1,313,000	1,625,000
Opening cash	5,007,000	4,083,000	2,679,000	1,116,000
Closing cash	6,581,000	5,111,000	3,992,000	2,741,000
	Analysis
Per share figures
Dividend/shares	0.03	0.03	0.04	0.05
NPAT/shares (EPS)	0.05	0.06	0.07	0.08
EBITDA/shares	0.09	0.11	0.11	0.13
Net Assets/shares	0.18	0.17	0.13	0.11
Profitability
ROA	18.21%	23.65%	28.82%	38.82%
Equity multiplier	1.6	1.6	1.8	2.0
ROE	28.94%	38.77%	50.59%	76.55%
ROavgE	30.52%	43.09%	56.22%	-
Net profit margin	6.73%	7.96%	9.55%	10.25%
Liquidity
Net working capital	7,464,000	6,430,000	4,829,000	3,757,000
Current ratio	2.44	2.20	1.96	1.72
Quick ratio	2.44	2.20	1.74	1.50
Working capital ratio	0.50	0.47	0.41	0.36
Capital structure
Debt to equity	0.59	0.64	0.76	0.97
Interest coverage	108.00	1573.67	#DIV/0!	269.35
Shares	50,489,746	50,489,746	50,250,000	50,250,000
Dividends paid	1,757,000	1,760,000	2,046,000	2,474,000
Dividend payout ratio	65%	54%	60%	60%
Growth rates
Revenue	-1.52%	14.88%	-11.24%
EBITDA	-18.61%	-3.62%	-14.38%
NPAT	-16.76%	-4.14%	-17.38%
Total assets	8.08%	16.82%	11.28%
Net assets	11.49%	25.09%	25.02%
g = (ROE*(1-DPR))	10.12%	17.74%	20.01%	30.33%
Other
Share price (14-August-07)	$            0.39	Avg 4 yr growth rate (NPAT)		-12.76%
Market cap	$  19,691,001	Cmpdg 4 yr growth rate (NPAT)		-9.89%
Enterprise value (EV)	$  25,189,001	Avg 4 yr growth rate (NA)		20.54%
EV/EBITDA	5.67	Cmpdg 4 yr growth rate (NA)		14.91%
P/E Ratio	7.29
P/NA ratio	2.11
Dividend yield	8.92%
Earnings yield (E/P)	14%

Trading over the last year

Other

Last updated: 14-11-2007

Company balance date: 31 March

 

Supplementary Information

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