Vonex to put cash in the bank and ramp up telco operations

By Jonathan Jackson. Published at Feb 4, 2020, in Technology

When you think of telecommunications innovator Vonex Limited (ASX:VN8), you don’t necessarily equate it with mining assets. It’s for that reason, that the company has entered into a preliminary purchase and sale agreement to dispose of its entitlements to iron ore production royalties derived from the Koolyanobbing Iron Ore Project.

Clearly, mining is not the company’s core strength. However, what this divestment will achieve is a financial gain to the tune of $2.5 million.

Vonex has agreed to a proposal from SilverStream SEZC, a Canadian mining-focused royalty and streaming company, to acquire the Koolyanobbing royalty. Koolyanobbing is mined by Yilgarn Iron Pty Ltd, a subsidiary of Mineral Resources Limited, with Vonex entitled to a 2% royalty calculated on a quarterly basis from ore mined and sold by Mineral Resources from tenement M77/1258.

“We are pleased to monetise the Company’s mining royalty through this transaction with Silver Stream. This will complete the disposal of assets outside our core business and will significantly strengthen the Company's balance sheet,” said Vonex managing director Matt Fahey.

“As a pure-play telecommunications company with increasingly strong cashflow dynamics, we are excited by the scope this transaction provides to accelerate our growth in servicing the SME market.”

Several conditions must be met for the sale to go ahead, including Silverstream successfully completing a TSX listing with a minimum capital raise of US$3 million and regulatory consent.

The sale comes at a time when Vonex is experiencing strong growth in its core telecommunications business.

Quarterly highlights

Vonex has enjoyed a number of highlights in the last quarter. These include:

  • Unaudited sales revenue of $2.53million, representing 17.25% year-on-year growth
  • Cash receipts from sales totalled $2.224 million, representing 13.2% year-on-year growth
  • Additional cash receipts for the December quarter included $0.629m of research and development grant funds
  • Cash at the end of the December quarter totalled $2.61million

The company has also been buoyed by its decision to acquire Queensland based telecommunications and data wholesaler, 2SG Wholesale.

The acquisition would strengthen Vonex’s revenues further, with 2SG achieving g revenue of circa $7million, with revenue from mobile broadband a key growth driver.

2SG Wholesale is expected to generate EBITDA in the first full financial year post acquisition (FY21) of approximately $750k.

The acquisition is subject to Vonex completing legal and financial due diligence to its satisfaction, which is expected to be completed by 7 February.

The acquisition will give Vonex proprietary billing and provisioning systems, staff and equipment, contracts with major telecommunications companies,140 wholesale customers, inventories and no debt.

PABX growth

Vonex’s PBX subscriber base has passed the 35,000 active customer mark for its cloud-based phone system platform.

This growth is a key indication of business development progress as Vonex penetrates the multi-billion dollar Australian SME telco market.

Vonex signed Total Contract Value of new customer sales worth more than $1.4 million for the quarter, an increase of 47% compared to the same quarter last year.

Vonex expects to deliver continued growth in TCV in FY20 as a mix of up front and recurring revenue

This comes at a time when its Oper8tor communications platform moves into final stage testing in the March quarter, with the company expected to release Oper8tor Version 1 to a wider community, including investors, through a controlled launch of the App once testing is complete.

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

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S3 Consortium Pty Ltd does and seeks to do business with companies featured in its articles. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this article. Investors should consider this article as only a single factor in making any investment decision. The publishers of this article also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article.

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