Pipe Networks projects pick up momentum

BEVAN Slattery and other executives of Brisbane-based sharemarket darling Pipe Networks, were all ears at a recent presentation by Mike Quigley.

Pipe Networks has been one of the state's star sharemarket performers as the global financial crisis tsunami has receded, and its share price bounced back from its global financial crisis slump.

Quigley, a 36-year veteran of telecommunications group Alcatel, had been appointed by the Rudd Government as executive chairman of its ambitious national broadband network project, the NBN.

He was in town as part of a national roadshow to let the telco industry know what he had in mind for the NBN.

Pipe, which listed on the Australian Securities Exchange in 2005 at the equivalent of about 40¢ a share, had hardly looked back until the global financial crisis hit.

By late 2007, its share price was $5.

Pipe's shares were hammered along with the rest of the stockmarket late last year in the wake of the Lehman Bros collapse.

And at the time, the company was struggling to fund an ambitious Sydney to Guam undersea cable, its so-called PPC-1 project.

But Pipe has recovered to become a market darling of sorts, making Slattery and his co-founder Steve Baxter stars of the latest BRW Young Rich list, with a combined fortune estimated at $74 million.

Post the Lehman collapse, Pipe's shares slumped to $1.90 at one point. But they hit a record intra-day high of $5.75 earlier this month and were sitting pretty at $5.42 on Friday.

That made the group worth over $300 million, with local broker Wilson HTM, through several of its funds, last week declaring itself a substantial shareholder, with 5.04 per cent of the stock, or nearly 2.84 million shares.

What Slattery, Baxter and other executives heard from Quigley was heartening.

Pipe essentially provides alternative telecommunication cabling to that of Telstra and Optus to businesses, government and particularly internet service providers, and as of June 30 it had 1300km of fibre optic lines installed across Brisbane, Sydney, Melbourne, Perth, Adelaide and Hobart.

It also runs the country's biggest internet exchange.

Pipe has also just completed the PPC-1 project, linking its Australian network to Guam, and thus to the US and Japan.

Slattery said last week that Quigley had indicated the NBN was unlikely to want to duplicate networks like Pipe's.

And he reckons with an NBN in place, the PPC-1 cable will be assured of extra traffic, as more and more data flows on and offshore from Australia.

There was a time late last year when PPC-1, which is due for its official launch next month, was in dire straits.

By June 2007, 95 per cent of the cable and other PPC equipment for the project was manufactured and ready to ship.

Pipe had arrangements to make progress payments as it was built, and agreements with potential users to underwrite its operation.

But suddenly, with world financial markets imploding, its bridging finance went wobbly.

Pipe had been expecting the funding from ANZ and Westpac. But despite weeks of negotiations, the ANZ's nod, which Pipe had thought a mere formality, wasn't forthcoming.

The credit crisis had changed the landscape and the project was seriously in doubt.

While Slattery says things were indeed "dire", he was able to turn to the cable companies and Pipe's PPC-1 customers, "all multinational top companies", who agreed to adjust their progress payments and bring forward payments for use of the cable to get the project through.

Despite the global financial crisis, Pipe reported revenue for the June 2009 year that was up 46 per cent to $50.4 million and earnings before interest and tax ahead by 43 per cent to $18.6 million.

Net profit after tax was up 46 per cent to $10.5 million with earnings per share up 26 per cent to 19.89¢.

Slattery and Baxter are Rockhampton boys, who attended the same primary school and followed on to North Rocky High.

They weren't "nerds", Slattery says, "but perhaps a bit geeky".

And having gone their own ways for a while they later teamed up in the telecommunications game, building other networking companies, before founding Pipe early last decade.

Pipe is chaired by Roger Clarke, veteran RBS Morgans investment banker.

And alongside Clarke, Slattery and Baxter on the board are chief operating officer Jason Sinclair and Greg Baynton, founder and managing director of Orbit Capital, a boutique investment bank that specialises in funding for start-up companies and was an early backer of Pipe.

Pipe has 56.25 million shares on issue with Slattery and Baxter holding about eight million shares, worth nearly $43.5 million, each.