From Mergers and Acquisitions to New Internet Regulations, Meet the CEO of WebCentral on His Top “Upward Opportunities”
Demasse said the WCG leadership team is focused on âdoubling hosting revenueâ over the next 12 to 24 months.
The diverse web hosting and data center group WebCentral (ASX: WCG) lays the foundation for strong long-term growth as its renowned merger with 5G Networks (ASX: 5GN) ends at the end of This year.
The merger, first announced in July, will create an ASX 300 company with the size and cross-sell opportunities to build a material ladder.
Combined with WCG’s recent takeover offer for Cirrus Networks (ASX: CNW), this is a busy and exciting time for the company, and Storer recently caught up with MD Joe Demase to get an update on the near term outlook.
Opportunity on the rise
One of the first synergies on which the combined group seeks to capitalize takes advantage of the respective strengths of the two companies.
WCG provides web hosting services to an established small business customer base of over 330,000 businesses that it previously managed through an external cloud provider.
This dovetails with 5GN’s core offering: integrated cloud services managed through its own network of physical data centers.
âWe have gradually moved (WCG’s network) to our private cloud and consolidated some of the rack space and cloud capacity they have in other data centers,â said Demasse.
âBring this WCG infrastructure to our platform, we can also strengthen some of the hosting specifications so that customers get their money’s worth. “
âAnd there are definitely cost savings over using someone else’s cloud infrastructure, which also gives us a real competitive advantage,â he said.
WCG is also uniquely positioned to benefit from ongoing changes to Australian Internet protocols, as the governing body auDA prepares to publish .au domains.
Early next year, Australian businesses will have the option of shortening their domains from “.com.au” and “net.au” to the “.au” suffix.
And Demase said this represents a “significant upside opportunity” for WCG during FY22.
âWe think about 80% of our customer base will be able to add a .au domain if it is not challenged, and that will be a really clean refresh for the market,â said Demase.
Against this backdrop, WCG’s management team estimates that these favorable industry winds could translate into a $ 4 million to $ 6 million increase in recurring revenue from March 22.
“This will give businesses the opportunity to refresh their name and potentially update their website at the same time.”
âSo that could be a pretty big revenue generator for us, as we think a lot of companies will keep both addresses – .com.au and .au,â Demase said.
In addition to its operational momentum, WCG also continues to strengthen its position within the framework of its public tender offer on the market of Cirrus Networks (ASX: CNW).
While CNW’s management team has yet to initiate further due diligence discussions regarding the offering, WebCentral has now increased its strategic stake in the business to over 18%.
In a note to shareholders last Wednesday, WCG said it continues to see significant strategic value in its decision to continue control of Cirrus.
âWebCentral knows and understands the IT services business undertaken by Cirrus and believes it can be turned around and operated more profitably,â the company said.
While Cirrus commissioned an independent expert report that valued its company at 3.6 cents a share, in the absence of further due diligence, WCG is upholding its current valuation offer of 3.2 cents.
âIn any valuation calculation, you have to standardize the point items. The independent assessment actually cited potential synergies from our takeover bid, as well as one-off items like JobKeeper and tax losses, âDemase told Stockhead.
âOur synergies or potential savings cannot be attributed to the valuation of the company. So when you pull it out and value CNW’s trading in a normal year, we think it brings the real value of the business closer to the level of 2.8c it was trading at when we made the offer for the first time.
Additionally, CNW shares have not reached Independent Report level and are currently trading at 3.2c.
So, with a key M&A transaction still in play, WCG has exciting opportunities to continue to grow through organic and inorganic channels.
“We believe WCG’s hosting revenue growth may double over the next two years, from approximately $ 10 million to $ 20 to $ 25 million,” said Demase.
âThere is an opportunity in web domains, but we are planning to launch Office365 backups and we also have an NBN product in the works, which will combine web hosting and internet access in one package. “
âThanks to this merger (WebCentral / 5GN), we now have 330,000 customers with whom we can market and start offering NBN-type services.
“So that’s where the organic growth is going to come from, and we’re moving aggressively forward with all of that, regardless of what happens with the merger.”
This article was developed in conjunction with WebCentral, an advertiser for Stockhead at the time of publication.
This article is not advice on financial products. You should consider getting independent advice before making any financial decisions.