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

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.

Analysts have stated that this company will exceed its top price of yesteryear which was around 20+ pence. Couple that with the fact that this company has an even better business model then ever before we are looking at around 30p+ medium/long term.

Then add the demand shown by liquidity and the potential possibility of a takeover we are an excellent investement vehicle here.

- Short term sway analysis is hear say and are good to get the weak investors out.

Great to see so many informed investors aboard. Whers Jules, are you a bird or a bloke????????????,
gf.

I've got biceps n triceps...work it out GF...lol..

Hmm,

CEO has resigned - although according to RNS, it seems that it was known a while ago. Seems the market didn't like the news though - down 7.5% this morning already (on light trading). Any one know if this is the reason or is there something else going on.

Rich

How long do you think investors will have to keep the stock to see some kind of reasonable return on their investment ?

I have noticed the shares have slipped again today to 0.0575.

Mark

maybe a good time to buy soon... had these on the monitor...interesting reading of CEO resig... market did not like that...

It's bounced back to 6. I see from the level 2 that CSCS are buying at 5.5. They're the ones who just sold umpteen million shares into the market at 7, aren't they? Presumably they don't want any back.

The whole market's pretty down at the moment (at least the bits I'm holding are :-)

yep.. thin trading all round today...there are loads of shares in issue for this stock..

JUST A HICCUP THIS MORNING. HOPEFULLY. BACK UP TO NEAR 7p

Recovered to 6.5 now. Still heavy on the sells with one sell of over 2mil.

Closed 6.25 - 6.75...0.5p spread - Classic case of MM's Weeding out all weak Holders and T+ traders...