Former Smart50 finalist Telcoinabox to float on ASX, but NBN a challenge

Former Smart50 winner Telcoinabox will list on the ASX by the end of June in a $3 million float, with founder and managing director Damian Kay telling SmartCompany the listing has been a “humbling” experience.

But Kay also says the changing telecommunications market and the construction of the National Broadband Network will present a risk for the newly listed entity.

The telecommunications market is undergoing a huge structural shift alongside the construction of the NBN – companies are consolidating and shifting attention away from infrastructure investments.

The company has made significant changes in the lead-up to the IPO, appointing marketing veteran Siimon Reynolds as a non-executive chairman and changing the company name to Inabox.

But Kay says the company is ready for the move.

“It’s the weirdest, most humbling, exciting, scary thing,” he says. “To a certain degree it’s like letting a piece of me go, but I say it’s for the greater good.”

Kay founded the business in 2003, initially sourcing funding from credit cards. The initial strategy was to have everything franchised, targeting mum and dad investors who could come up with their own brand and pricing models.

Now the company, which has acquired wholesale aggregator and VoIP provider iVox, has over 200 retial services providers across the country.

Kay says the time is ripe for telecommunications businesses, noting the average listed company in the industry is trading at 14 times its listed value. He also points to the growth among businesses such as M2 and iiNet.

“The whole market has taken a dip, but if you look at telco stocks over the past two years – Telstra is trading at record highs, MyNetFone has grown from a $20 million market cap to $100 million.”

“Our peers are trading at 14x on average.”

Inabox recorded $45.7 million revenue for the 2011-12 financial year, and has recorded $22.6 million for the first half of the 2013 financial year. Net profit after tax was $800,000 in 2011-12 and is expected to rise to $1 million during 2013.

The company has certainly differentiated itself with a franchising approach to telecommunications, but there are other challenges ahead. The company’s prospectus lists the NBN as a risk that could affect the listing – and Kay acknowledges the NBN could present a hurdle.

The prospectus notes the company could be “adversely affected by changes to government policies and legislation”.

“We cannot be certain how the National Broadband Network or other changes in technology will impact Inabox and our retail service providers in the future,” it says.

Kay says while the NBN means Inabox won’t have to compete with infrastructure providers, it still creates some industry turbulence.

“The NBN creates a much more level playing field, so all of a sudden we’re accessing the core network at the same price.”

Larger businesses such as Telstra have been shifting their focus from infrastructure to customer service as the NBN erases the need for infrastructure investment. Kay says the shift is less about revenue for Telcoinabox and more about keeping track of legislative change.

For now, however, Kay says his plan is to keep working on the business – he won’t take any money from the float.

“I’m not taking any money from the table, and I’m escrowed for 18 months.”

“This is a humbling experience…I plan to stay here.”

The IPO offer is $1.20 per share, with 2,416,667 shares on offer. The listing is scheduled for June 26.