If you missed it, last week Lite Access announced that they have been awarded a contract worth approximately CDN$13 million from CityFibre, as part of CityFibre’s £2.5 billion fibre to-the premise investment strategy (Click here for Press Release). Lite Access has already started working on this contract, in a second city, and surveyors are there as we speak. In the coming weeks, we anticipate that there will be a public announcement addressing the location and number of homes included in this contract.
CityFibre is backed by Goldman Sachs and embarking on a major rollout of fiber to the home networks throughout the UK. It recently purchased FibreNation, increasing CityFibre’s rollout plans from 5 million premises to ultimately pass up to 8 million premises. The combined rollout creates an investment programme that’s worth approximately CDN$7 billion on completion.
Is Lite Access finally at the right place, at the right time?
The Company appears to have survived a difficult couple of years in the UK market, where Telco’s who have fallen behind schedule, are now being forced to engage in better commercial relationships with their installers.
On October 23, 2019, the company announced that it had been awarded a contract worth approximately CDN $20 million from CityFibre. To date, Lite Access has a contracted backlog of approximately CDN $33 million which is expected to be delivered over the next 2 years.
Lite Access has started work on the first $20 million contract. January, February, March is the ramp-up period for that project and then March, April, May is the ramp-up period for the second contract. So technically they have begun work on both contracts and are in the preliminary stages of completing survey work. Lite Access has set up shop and will be ramping up next month. Regarding the first contract, Lite Access has completely mobilized, with all equipment in place, and secured office space and warehouse storage.
According to management, they are currently surveying preliminary works, advanced works, testing, and as far as actual work in terms of media are concerned, there's still some work that must be done first before they can start actual digging. They’ll likely start putting the cutting wheels of the plows into the ground in another couple of weeks. There’s also a lot of overhead work since not all the installation work is underground.
Lite Access is now in a hiring phase and feel they are about 75% through the process for Lowestoft. Additionally, they have already started the hiring process for the second awarded city. The Company is well equipped, with the necessary equipment, apart from some general trucks and machines they’ll be renting. Therefore, CapEx should be relatively light for now.
So, what has changed?
According to management, over the past couple of years, they’ve been able to demonstrate their specialty equipment, expertise, and know-how to a variety of potential customers – CityFibre being one. Lite Access is a relative newcomer to the telecom construction sector in the U.K. and understandably it has taken time to develop the necessary relationships.
CEO Carlo Shimoon states: “It’s really up to us, to show CityFibre what we can do. They have agreed to provide us this amazing opportunity and it’s our job to perform in all areas.”
We agree, something seems to have changed. Since concluding the relationship with Actavo and Gigaclear, the new management team has been pounding the U.K. pavement seeking installation work with solid commercial terms.
Since joining, part of CEO Carlo’s mission has been to ensure Lite Access would have contracts that supplied minimum value or flow of work to the Company. There have been plenty of opportunities to sign contracts, but management was adamant to not sign a contract for unprofitable work.
The strategy is starting to pay off, as Lite Access has now announced two material contracts creating their largest contracted backlog in Company history.
Management are comfortable with the terms and feel confident that there is ample more work for them in the U.K. if they continue to perform. The initial CDN $20 million contract announced several months ago, was for approximately 28,000 homes or roughly CDN $700+ per home. Keep in mind, CityFibre now has 8 million homes to pass, and there’s several other ISP’s with similar mandates.
Management are quite confident if they perform at the level CityFibre expects them to, there’s more potential work, and are confident other ISP’s will continue to take an interest in Lite Access.
The Lite Access team has been diligently working to land commercially viable contracts in the UK. With the first contract from CityFibre announced and now a second contract as further validation of their partnership, if management can successfully execute in delivering quality work, we believe shareholders could be greatly rewarded.
This is a massive opportunity for Lite Access, and we applaud Carlo in sticking to his principles. Further, if the Company and management deliver on this opportunity, we believe the long-suffering Lite Access shareholders will finally have something to cheer about.
Carlo believes the company has turned the corner and has been putting some of his money where his mouth. Since December, and shortly after this recent contract win Carlo has purchased more shares and we expect this to continue.
Lite Access’ fiscal year-end is September, which means the Company will be reporting financials sometime this week. Since none of the recently announced U.K. business will be included, we don’t anticipate Q4, or Q1, to be strong reporting quarters. Adding to that, we believe most of the selling has happened over the past couple years, and the stock is fairly washed out. As the Company becomes forward looking, we believe any market weakness will provide a good opportunity for new investors, or those looking to average down.
We hope Carlo’s right in adding more shares, but we also recognize a turnaround as the current CDN $33 million backlog significantly de-risks the Company. We are long share of Lite Access Technologies (LTE-TSX.V) and are buyers up to $0.55
