The Over The Wire Holdings Ltd (ASX: OTW) share price is on watch today after giving investors a business update.
Over The Wire is a telecommunications, cloud and IT solutions provider. It also offers products like data networks, internet, voice, data centre c0-location and cloud and managed services.
OTW’s business update
The company told investors that a major hardware supply contract, for which a substantial deposit has been received, will not be delivered to the customer until FY22.
That means the revenue and earnings for that contract will now be recognised in FY22, not FY21.
Management said that recurring revenue and recurring profit is expected to remain strong and is inline with the company’s plans.
The company said that it was unfortunate that the timing of this specific hardware supply contract will fall into FY22, but it has no other impact on the company’s increasingly strong organic growth and earnings profile.
This delay was due to manufacturing and shipping delays. The company has already received a deposit of 50% of the contract.
FY21 forecast
Based on accounting work done so far, the company is expecting revenue of approximately $112 million. Recurring revenue organic growth from the first half to the second half of FY21 is expected to be approximately 7%.
New recurring revenue signed in the fourth quarter is expected to exceed $350,000 contracted monthly recurring revenue (MRR).
EBITDA (EBITDA explained) is expected to be approximately $23.5 million.
Half of the expected EBITDA benefit from the tier 1 voice provider (carrier interconnect) project is expected to be realised from 1 July 2021.
Around $5 million of revenue and $1.5 million of EBITDA is expected to be recognised in FY22 because of that delayed contract.
Management comments
OTW Managing Director Michael Omeros said:
Our pipeline of signed and potential business remains extremely positive and positions us well to deliver organic growth in FY22 in line with our 15% target. This is an exceptional outcome from our team and demonstrates that our Cloud. Connect. Collaborate. offering is delivering that right outcomes for our customers. Our focus remains on building a successful long term business and we continue to invest for growth and in positive solutions for our customers. Some of our recent investments include our tier one voice network, super core and international capacity. By calendar year end we also plan on having the digital sense cloud available in Sydney and Melbourne to take advantage of the continued demand for the cloud.”
Summary thoughts on OTW and the share price
OTW seems like a solid business, but its valuation is now quite high on a price/earnings ratio basis.
It’d be a good business to have owned for the long term, but I’m not sure I’d want to buy today with a lot of growth already factored in.
There are other ASX growth shares that might be better value.
