The management of this telco network company have shelled out just short of 20 million on assets worth over 400 million, amazing. Please read the following report.

Many thanks to Brian for this excelent e- mail on the company.

If it's good enough for Warren Buffett ........
Published: 07:41 Fri 29 Aug 2003
By Joanne Wallen, Associate Editor,/b>


Alternative telecoms player GX Networks is defying all odds - it has just raised a further 12 million, made another acquisition and should be profitable 'very soon' thanks to the vice chairman's cunning plan - it's also in a sector that two US billionaire investors have bought into.

Peter Dubens is vice chairman of GX and also of ukbetting, and his strategy for both is the same. He is taking advantage of what he views as a unique moment in history to create two businesses that both become the beneficiaries of the massive over investment made by young companies in the past four years.

GX (GXN) today announced that it has acquired Firstnet Services, a similar telecoms business to itself, from Minorplanet (MPS) for 4.3 million. At the same time it has raised 12 million through an institutional placing of 261.9 million shares at 4.75p.

GX Networks was a private company that Dubens bought last year, before reversing it into AIM-listed Zipcom and changing the name to GX. The company bought two businesses that were virtually bankrupt and two more since that were 'not distressed' including today's acquisition of Firstnet Services from Minorplanet.

Dubens told Citywire that in total, these businesses have had investment of a massive 400 million, fuelled by the investment money being thrown around during the dotcom bubble. The opportunity comes from acquiring the expensive technology and infrastructure that this spending frenzy paid for, while chopping out all the excess costs and creating at a fraction of the original cost a viable business.

GX is a provider of telecoms and Internet hosting services to small and medium businesses. Another valuable legacy of the halcyon days is the long-term rental type agreement it enjoys with network owner Fibernet (FIB). GX is probably the sole survivor with a 25-year (now 23 years left to run) Indefensible Right of Use (IRU) agreement with Fibernet. This agreement effectively gives GX ownership of part of the network for the duration of the IRU. GX's previous owner paid some 11 million up front for the privilege, but it was an agreement that caused strange accounting anomalies among the carriers, and Fibernet for one stopped issuing IRU's.

Dubens says the IRU gives GX far lower capital costs than any other telco, since it is not responsible for maintaining the network for the next 23 years.

The idea therefore is to get as many customers as possible using the network, hence today's acquisition and the previous purchases of Transigent last October and Telenor Business Holdings' XTML and Compulink Information eXchange in July, each of which has been primarily for the customer base. The company now has some 20,000 customers and 44 million worth of billings.

Firstnet also adds some wireless and broadband technology and significantly increases the company's hosting capacity.

There is clearly significant duplication in putting these similar businesses together – call centres, management teams and the like, and Dubens and his team have already demonstrated at Ukbetting that they can be ruthless in stripping away unnecessary costs.

So after the devastation of the past few years, is there really still a viable business for an alternative telecoms operator? 'More so than ever,' reckons Dubens. He cites ukbetting's own situation as an extensive user of telecoms, spending some 700,000 a year on communications. The online betting site has leased lines, satellite links, virtual private networks and is absolutely dependent on having a service that can handle millions of bets coming through at the same time for a major sporting event. Dubens reckons small and medium businesses need a reliable alternative to the incumbents like BT, that can offer a more personalised service to their customers.

But he would say that. A more compelling reason to believe that there will be some winners in the sector is the recent investment by two well known billionaire investors, Warren Buffett and Carl Icahn.

Buffett, the traditionally tech-averse 'Sage of Omaha' emerged with a $20 million (12.7 million) stake in US telco Level 3 in May, while Icahn, a 67-year-old billionaire, took XO Communications out of bankruptcy in January and has since launched a $700 million hostile offer for bankrupt telecom provider Global Crossing.

Shortly after announcing his offer for Global Crossing, Icahn is reported to have said: 'This is like the railroads in the 1880's.'

Dubens himself is no slouch. As well as GX and Ukbetting he is a co-founder of Avocet Capital Management, a European technology hedge fund management business.

Two UK shrewd investors to have spotted the opportunity are A-rated Roger Whiteoak, with 4 million shares in the Framlington UK Smaller Companies Acc fund and also 45 million shares or 4.59% in the Throgmorton Trust (THRA). AAA-rated Patrick Evershed holds 0.51% for the New Star Select Opportunities fund.

GX's shares are currently up 0.125p at 5.625p, valuing the business at 56.6 million. If the company can break into profit any time soon, and the hunches of Dubens, Buffet and Icahn are right, now is the time to buy. Just remember this is still a risky business, and Buffett and Icahn at least can afford to lose a few shirts.ENDS.

Indeed risky but if all things go to plan just how big will the reward be.

GF

Mexican
thanks

There is an overhang, CS the house broker is getting rid of it's placement stock. Once they allow the other mm's to play then this stock goes north.

What does CS and mm's mean? I'm a beginner. Thanks.

CS, Collins Stewart. MM, market maker.

kael
thanks, makes more sense now, bloody cs, will be the death of me !!

kael
any idea of the amount cs has to sell?

cheers

we dont have to be clever to see demand and appetite for GXN is out there...FUTURE LOOKING GOOD...

Kael is correct. Just one MM holding this back on level 2. When overhang as gone , BLAST OFF.

gf.

If GXN were to carry on even going up 0.25p every day or two in the mean time,B4 a blast-off I'm not one to complain...

Jules99.

Being a complete newbie could somebody explain the info for GXN in the level2 screen?
What does CSCS, SCAP and WINS mean in the buy and sell orders boxes?
And why do they not show all of the trades that have taken place??

Thanks in advance

Rich

Ack. It's fallen back to 6 and the spread is over 11%. Any suggestions as to what's happening? All the brokers are offering the same prices now so can we assume that the protected sell at 7 is now over?

Doug

GXN DOWN .5 HOW DOES THAT WORK AFTER ALL THE VOLUME TRADED RECENTLY. JUST THE CALM BEFORE THE STORM???

richstuch - see http://www.moneyam.com/TradersRoom/ShowPostList?fID=1&tID=1584 which is a thread I started yesterday asking about L2 data.

WINS, CSCS and SCAP are the codes for the Market Makers dealing in GXN. Can't remember their full names offhand but the link above should guide you towards the info.

Doug

Seen a few shares react like this recently (GLD, SYM, GXN). Large amounts of buying pressure and little movement up, small quantities of sells and price moves down. Reasons for this? I guess it's a) market makers playing games b) shares have had a good run so time to ease off the gas c) results are due soon, opportunities to squeeze weak holders out. But in all of these companies, the fundamentals should see the share through. If you have doubt in your selection best to go back to fundamentals to get reassurance :)

About equal buys and sells so far today.

Motion media did the same...rose then dropped, a lot of people sold out, and then BOOM...motion media moved massive almost everyday the following week, the rest u know...


Jules99.

Well, I can ride it all the way down to 5 before moving into loss so I'm happy to hold on.

Profit taking all over the markets today nothing to worry about. Might shake a few speculators out and as far as I am concerned good. No problems, the company is still the same company as yesterday and the day before etc, etc.
gf.

Yeah, I have a lot of confidence in this one. Looks way undervalued to me.