A fund manager has revealed an ASX company that he reckons is set up for the future with a tight stranglehold on its industry.
So much so, that it is in a virtual duopoly with the National Broadband Network.
SG Hiscock portfolio manager Hamish Tadgell told The Motley Fool that Uniti Group Ltd (ASX: UWL) is one of the most underrated stocks currently on the ASX.
“Over the last 18 months it transitioned from providing fibre network services to residential [and] greenfield residential developments to become much more a fibre infrastructure company,” he said in this week’s Ask A Fund Manager.
“It’s recently just bought OptiComm Ltd (ASX: OPC), and also bought Telstra Corporation Ltd (ASX: TLS)’s Velocity business.”
The transformation came at the perfect time, with the COVID-19 pandemic proving that connectivity is no longer a luxury but a utility — no different to water or electricity.
“During the bid they made for OptiComm, Aware Super, which is the old First State Super, made a rival bid,” Tadgell said.
“In our mind, this reinforces the point that these assets are starting to be viewed in a different light, [as] the social infrastructure-type assets.”
Number 2 in a cosy duopoly
All this adds up to a secure future for Uniti, according to Tadgell.
“Our view is that Uniti is now the number 2 player in what is essentially a duopoly market with NBN.”
The Adelaide company even has one advantage over NBNCo, the government organisation that builds and operates the NBN.
“[Uniti] is the only player that’s got the ability to sell in the wholesale and retail channels, through having recently won structural separation approval from the ACCC.”
NBN is a pure wholesale provider of internet connectivity.
Uniti was formerly known as Uniti Wireless Limited, but changed its name during the transition to more wired infrastructure. The business listed on the ASX in February 2019.
The Uniti share price sat at $1.67 in early trade Monday.
It was $1.531 a year ago, which means it’s had a tidy 9% rise over the year of COVID — good for a top 5 placing among the best-performed telco shares in 2020.
Bell Potter analysts also rated Uniti as a “buy” in a client briefing earlier this month, with an intriguing twist.
“We are positive on the outlook for the combined company given the strong pipeline and also the potential for synergies to be greater than flagged,” the briefing read.
“We also see the stock as a potential takeover target over the next 6 to 12 months.”
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Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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