As a friend of NBT, you know we've been watching and waiting for the 4G Broadband Mobility revolution. Now that it's finally upon us, I don't want ANYONE to be left behind when this sector -- and the best stocks within it...
How to Play the 4G Broadband Mobility Revolution
Massively Accretive Deal Adds $12+ Million to VelaTel's Annual Revenues + $12MM-$16MM In Additional Private Market Cap…At Simple 2X Revenue Valuation VELA is a 20 Cent Stock Selling for 3 Cents Today…Wow!
VelaTel Global Communications (VELA), a leader in deploying and operating wireless broadband and telecommunication networks worldwide, announced today that it has closed its acquisition of a 100% equity interest in China Motion Telecom (HK) Ltd. for a total purchase price of approximately US$6.4 million, with US$1.6 million paid in cash and the balance in the form of a promissory note payable within six months (contract amounts are in Hong Kong dollars, with their approximate US dollar equivalents described here).
China Motion, www.cmmobile.com.hk/eng/, is the leading mobile virtual network operator (MVNO) in Hong Kong, with more than 100,000 customers. China Motion generates approximately $12 million in revenue and $2 million in EBITDA (net of certain intercompany charges) on a consistent and annualized basis over its past two years' financial statements (FYE 3/31). VelaTel will be entitled to consolidate China Motion's future results into its financial statements as of the March 1 closing date.
VelaTel also intends to immediately upgrade China Motion's network operations center from 2G to 4G technology. "We expect to complete the upgrade in the next three to six months, and for this to result in a 25-50% increase in revenues by having the ability to offer customers enhanced data packages," noted VelaTel's CEO George Alvarez.
NBT Analysis: What this REALLY means is VELA made a superb deal that is VERY accretive to their EBITDA cash flow…adds $12-$16MM to current valuation…and is incredibly strategic:
- China Motion deal is MASSIVELY Accretive: VELA paid $1.6MM cash for a company with $1MM cash in its bank account (from what we can infer based on various financial statements filed on HK Exchange from its parent company).
- China Motion Adds $12 Million to $16 Million in Public Company Valuation to VELA—which today has market cap of about $4.5 million (@156MM shares outstanding) because China Motion generates $150-200K a month in free cash flow aka EBITDA (from audited financial statements). $2 million of EBITDA (and growing 20% pre-VELA deal) times 6-8X EBITDA valuation for comparable public 4G mobile wireless companies adds $12-$16 MILLION in private company market value to VELA.
- At a per subscriber value of $800 (avg value per MVNO data customer recently paid for Virgin Media) the China Motion subsidiary has $80 million value—at 75% OFF that comp or $200 per MVNO subscriber China Motion is a $16 million value. VELA paid $64 per subscriber for CM’s 100,000 current subscribers…wow again.
- At 2X revenues valuation (the current Clearwire CLWR 4G wireless carrier comparable) VELA (already at $15MM+ ttm revenues for 2013 fully consolidated) is a $30 million valuation company TODAY or 20 CENTS a share—today VELA is a 3 cents a share value.
- The MVNO has 25-50% revenue growth potential based on a @$2MM upgrade of its network operations center (NOC) to 4G technology and speed (4G HSPA+ equipment not 4G-LTE…yet). This means in a few months the China Motion MVNO converts from 2G to 4G speed with VELA financing that HSPA+ equipment upgrade with 85% 5-year low cost equipment financing from their partner ZTE and pay the 15% down in cash from China Motion’s bank account. China Motion in turn will be able to UPGRADE its service to 4G (from 2G) and now sell SIMS that service ALL the latest smartphones—and charge 20-30% MORE per month MORE for their 4G service to give customers 20-50X more speed.
- There are GREAT synergies between VelaTel’s Zapna subsidiary and China Motion. Zapna sells a SIM chip overlay that lowers international long distance fees up to 90% for China Motion MVNO customers—who COULDN’T sell that upgrade? Every new Zapna client adds @$15-20 a month in VERY high margin revenues.
- Worst case scenario on the six month $4.8M note? Although with higher valuation VELA should be able to pay it off with MUCH higher value Convertible Preferred stock or debt…NBT has contacted at least 10 private equity funds that would purchase the $4.8M note for free trading shares in the worst case scenario. Figure 50 million shares get’s this done…which takes VELA to 200 million shares.
- It is in VELA’s best interest therefore to do EVERYTHING they can to do over the next six months to get this 7x-10X upside story OUT to the investment world. NBT has offered to LEAD the new shareholder acquisition charge for free trading shares…and we have many affiliated shareholder acquisition firms that have agreed to participate with us.
- AFTER note is paid off, IF VELA shares sell for anything LESS than 20 cents a share…it will be a GREAT use of some China Motion cash flow to repurchase VELA shares from the open market to arbitrage this accretive acquisition. NBT will endeavor to put together a majority of VELA shareholders to get a VELA board seat or Advisory Board seat to ENSURE that for once VELA management supports its share price and long suffering shareholders.
Bottom-line—this deal is truly transformational for VelaTel for a dozen reasons…let’s visit a few more.
The Rest of the Deal Points
As an licensed MVNO, China Motion partners with leading mobile carriers in the Greater China region (China Mobile/China Unicom/China Telecom) to provide mobile wireless network services to retail customers using its own billing support systems, customer service and sales personnel. China Motion's business model focuses on frequent travelers who conduct cross-border business between Hong Kong, Taiwan and mainland China.
China Motion is the first company in Hong Kong to offer customers a single cell phone SIM chip with dual number capability for use in either Hong Kong and China or Hong Kong and Taiwan (and now will also offer up to 90% discounted international calling plans via the VELA subsidiary Zapna to ALL the China Motion customers in Hong Kong, China and Taiwan).
The acquisition of China Motion furthers several of VelaTel's long term strategic goals. First, China Motion's access to wholesale voice and data services using the wireless network resources of incumbent carriers will allow VelaTel to begin deployment of its projects in mainland China with a fraction of the capital expenditures originally budgeted.
What does this mean? VelaTel is building B2B 4G networks with two massive $multi-billion state-owned enterprises—NGSN and CASC. Owning the China licensed MVNO means that VELA can deploy the MVNO (riding over-the-top of China Mobile/Unicom/Telecom spectrum) but branded as NGS or CASC network for 90% LESS cost than building a 4G network from scratch. This is a huge advance for VELA's B2B strategy in the PRC.
Second, China Motion's experience and personnel in sales and marketing, customer service and billing solutions provides a platform to serve VelaTel's wireless broadband and voice networks worldwide.
What does this mean? Velatel’s engineer nerds are NOT consumer marketers---they are the first to tell you this. They are going to bring China Motion's experience and personnel in sales and marketing, customer service and billing solutions TO their wireless carrier operations in Peru (Go Movil) and
Croatia/Montenegro (Novi-Net and Montenegro Connect) as WELL as the future networks in PRC China with NGNS and CASC. THIS is great news for building out these 4G wireless networks and getting true value from the HIGHLY valuable spectrum VELA owns.
Third, the acquisition creates tremendous synergies with VelaTel's Europe based subsidiary Zapna, which also focuses on long distance and roaming solutions that cater particularly to the frequent international traveler. "The roaming and long distance solutions offered by China Motion and Zapna complement each other. We expect the revenues of both subsidiaries to increase as each gains exposure to customers beyond their current regional markets in Northern Europe and Greater China," remarked VelaTel's President, Colin Tay.
What this means? They will sell the hell out of Zapna’s SIM card overlay technology to China Motion customers for up to 90% LOWER roaming and voice calling costs at $15-$20 a month high margin revenues.
Bottom-Line: Like I said—we at NBT have come TOO far with VelaTel and George Alvarez & Colin Tay to NOT see this friggin’ thing to the finish line. We own a few million shares directly…and our “VelaTel Syndicate” has to control 25-30 million shares.
VelaTel has enough subsidiaries to build a $100 million company IF they focus on execution from here on out. NBT Capital Markets (owner of NBT Equities Research) will turn our shareholder acquisition engine on for VELA to tell this amazing under-valuation story to the retail and institutional investment world.
IF VELA executes, $1 a share is NOT far-fetched given the current 4G per subscriber valuations of carriers around the emerging markets world…in fact $1 a share is quite low.
Assuming VELA builds China Motion/NGSN/CASC networks in China to 300,000 subscribers…and Croatia/Montenegro to 100k subscribers…and Peru to 100,000 subscribers (adding Lima’s 8.7 million population to their network) a 500,000 subscriber 4G-LTE carrier would have a $500,000,000 value in today’s market.
As data consumption grows 185% a year (Cisco’s numbers) 4G-LTE networks (that will turn into 5G networks by 2020) will be worth maybe $2000 per seasoned subscriber (sub with more than 3 years of continuous service.
At the current valuation…VELA is the buy of a lifetime and NOW is our #1 Ten-Bagger Stock of 2013.
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Founder and Editor-in-Chief for NBTEquitiesResearch.com. Contributor and Anchor for the Fox News Channel and Fox Business Network 2000-2013. Chairman & CEO of NBT Group, Inc., a boutique private capital investment bank and investor relations organization.
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