TGO.TO - Terago Inc

[HeresyValue]

Since it's never been mentioned on this site.

 

Business Description:

 

"TeraGo Inc. is a wireless broadband communications service provider to businesses in Canada. The Company owns and operates a carrier-grade Multi-Protocol Label Switching (MPLS) enabled, fixed wireless, Internet Protocol (IP) communications network in Canada, providing businesses with scalable, and secure Internet access and data connectivity services. In addition, the Company is a provider of facilities-based backhaul services to Canadian wireless carriers and local voice access services. Its wireless broadband network provides Canadian businesses with Internet access with upload and downloads speeds from 1.5 megabytes per second to 100 megabytes per second. In February 2014, TeraGo Inc announced the acquisition of a 7,000 square foot data center facility in downtown Vancouver, British Columbia"

 

http://heresyvalue.blogspot.ca/2014/04/terago-tsxtgo.html

[mcliu]

I think it's pretty fairly valued since there's a lot of execution risk. It's not a given that the new business model will work.

 

It's also tough to price off of EBITDA since the figure is declining and capex is increasing.

[craigatk]

As the head of IT and a direct customer of their service in my day job, I can say that I'm quite happy with Terago. In my opinion, business broadband is quite sticky with high switching costs. We are hosting our own webserver as well as a VPN for 5 other Canadian offices out of head office. Terago is not cheap but it works and is more reliable/scalable than the alternative. Our other offices are only using Telus/Bell business DSL at a much lower price point.

 

Don't let them know it, but Terago does have some pricing power. We've been using for 4+ years but have never directly had a rate increase. Only when we initiated change of service requests/bandwidth increases due to growth. I would probably keep paying if they decided to raise rates as it would be a huge project and hassle to switch everything over to a new provider.

[mcliu]

I think it's pretty fairly valued since there's a lot of execution risk. It's not a given that the new business model will work.

 

It's also tough to price off of EBITDA since the figure is declining and capex is increasing.

 

EBITDA decreased in the 4th qtr due to departing CEO costs and purchase. For the year, EBITDA was actually up.

 

As per MD&A:

 

EBITDA for the year ended December 31, 2013 was $16.5 million compared to $15.3 million for the same period

in 2012, an increase of 8%;

• EBITDA for the three months ended December 31, 2013 was $3.0 million compared to $4.0 million for the same

period in 2012, an decrease of 23% due to costs incurred in the fourth quarter of 2013 of $1.3 million related to a departing executive and cost of services and costs related to the Vancouver data centre purchase in the quarter;

 

I think projected EBITDA going forward it should decline somewhat since locations are decreasing and there's additional costs coming online. I only looked into this briefly, but that was my impression on EBITDA trend.

 

As the head of IT and a direct customer of their service in my day job, I can say that I'm quite happy with Terago. In my opinion, business broadband is quite sticky with high switching costs. We are hosting our own webserver as well as a VPN for 5 other Canadian offices out of head office. Terago is not cheap but it works and is more reliable/scalable than the alternative. Our other offices are only using Telus/Bell business DSL at a much lower price point.

 

Don't let them know it, but Terago does have some pricing power. We've been using for 4+ years but have never directly had a rate increase. Only when we initiated change of service requests/bandwidth increases due to growth. I would probably keep paying if they decided to raise rates as it would be a huge project and hassle to switch everything over to a new provider.

 

Thanks for the insight craigatk. That's very helpful. Is there a reason that you guys went with Terago in the beginning instead of one of the larger telcos? Is this an availability or redundancy issue?

[craigatk]

Exactly it was availability in our service area at the time we moved into that location. I think our needs/experience was characterised very well in the blog posting.

[HeresyValue]

Don't let them know it, but Terago does have some pricing power.

 

I already did (sorry!), but I'm sure the new management team is aware of this. There was probably hesitancy in taking advantage of it in the past since they didn't want to have the word spread around while they were trying to sign up a lot of customers very rapidly. Thanks for the comment. What do you think about Terago offering you ancillary services? (ie. data centre / catastrophe backup / etc.)

[HeresyValue]

Interesting little business. Stock is trading at about 1.5 times book. Company mentions on the CC that there will be hiccups during 2014. Do you think heresyvalue that there will be a better time to buy than today? Maybe at BV?

 

No, because I'm buying it.

 

I think it's pretty fairly valued since there's a lot of execution risk. It's not a given that the new business model will work.

 

It's also tough to price off of EBITDA since the figure is declining and capex is increasing.

 

I don't even know where to start. Oh well, your loss, not mine.

[Cardboard]

Time to bring this back to life...

 

For those of you who have been involved in the Clearwire saga, this will bring back some memories.

 

Basically this company owns a ton of valuable spectrum in Canada for 5G. Manager of the Dark Horse Fund does a much better job than I can explaining the thesis:

 

https://www.arrow-capital.com/sites/default/files/media/Broadview%20Dark%20Horse%20Fund%20Commentary%20-%20Q3%202018.pdf

 

Moreover, this is now being picked up by the media:

 

https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aBCE-2703601&symbol=BCE&region=C

 

With Rogers, BCE, Telus, Videotron and others all looking for an edge, I do believe that the valuation used by Lee Matheson of $0.015 to $0.02 per Mhz/POP is way too low.

 

So it seems to be priced defensively here based on existing business and a using a very low value for quite a bit of spectrum.

 

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[cameronfen]

The mmWave spectrum is not nearly as good (and much more plentiful) then spectrum other companies have (like Intelsat for example).  Straightpath is the nearest comp as the article implies, it sold for roughly 1.5-2 cents MHz/pop.  I also think USA is a better telecom market than Canada. In particular, mmWave spectrum small cells only make economic sense in high density areas. Canada even if you only take the parts 100 miles from the US border, Canada doesnt have the equivalent density of the megacities like the eastern seaboard or the west coast. 

[Cardboard]

Regarding population and density, you are ignoring the fact that the Toronto area all the way to Hamilton is 1/3 of Canada. This is very concentrated, LA style or more.

 

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