Shares in challenger telco Pentanet almost triple post-IPO

Shares in challenger telco Pentanet almost triple post-IPO

Car and gaming enthusiast Stephen Cornish (pictured) went all in on his dream to create a fixed wireless telecommunications company in his native Perth. Having sold his much-loved Honda S2000 to help buy a house, he then sold that house to fund the creation of his business Pentanet in 2017, building towers and delivering fast and affordable internet to customers.

The extended Cornish family, friends around Perth, and employees also invested in the company, culminating in a $22 million IPO late last month with Pentanet (ASX: 5GG) valued at $66 million.

Buoyed by a rapidly growing subscriber base in WA, next generation technology developed by Facebook, and an ambitious national cloud gaming roll-out in partnership with global graphics chip powerhouse NVIDIA, Pentanet's market capitalisation has swelled to almost $180 million in less than a month.

Now the entrepreneur can buy as many Hondas as he likes, but what drives him is a passion to change the internet experience as we know it with efficient last-mile solutions to ensure stable connectivity. 

2021 has been described far and wide as the "Year of 5G", and the trajectory of Australia's internet infrastructure prospects was given another boost this month when veteran entrepreneur Bevan Slattery announced a $1.5 billion fibre network project to improve speeds around the nation.

Cornish's venture is a long way from that scale, but at the age of 33 he is just a few years older than Slattery was when he co-founded telco infrastructure group PIPENetworks in 2001, which was eventually sold to TPG (ASX: TPG) for $373 million.

Technology and the equipment and systems it requires have scaled up rapidly since then, cash has become substantially cheaper, and at the turn of the Millennium no one could have predicted we would be accessing the internet on our phones and streaming any music we like for a small subscription fee.

Don't be fooled by the ASX ticker code though. The business model of the stock traded as '5GG' does not deliver 5G technology - Pentanet offers fixed internet services to the home rather than smartphone-oriented 5G, but it fits within the same mega trend towards cloud computing and superior internet user experience.

"What Bevan will be doing, it's a transmission network. That's how you get large amounts of data between cities, and you then distribute that data down to people who are using it like the large telcos do with the 5G networks," explains Cornish, who was an Australian Young Entrepreneur Awards finalist in 2018.

"Their style of 5G is called last mile, and that's how you get from heavy infrastructure to the end users. The NBN is also a last mile network.

Pentanet's offering is also last-mile but the company takes a different approach, fixing wireless technology to the roofs of homes and businesses. Subscription numbers tripled in FY20 and have now surpassed 10,000, while the IPO's funding is being used to expand the network with plans to roll out a "mesh network" of next generation gigabit fixed-wireless technology developed by Facebook.

"The advantage that we have by doing that is that because it's fixed and it's all programmed into the network, it will be able to handle much higher speeds more consistently," says Cornish.

When asked whether he expects current growth rates to continue, and when an expansion of the model could be deployed elsewhere in Australia, Cornish emphasises the company takes a conservative approach to modelling.

"We've come from selling a house, making sure all the dollars get put to work, using family money - we're very conservative in our thinking and our modelling. All we talk to is what we're doing now," he responds.

"But what we want to do is keep on that run rate but be utilising more of our knowledge around the wireless, rather than using other last mile networks.

"When it comes to moving from Perth, it's not even on the scope right now."

But Cornish, whose brother Tim is also an executive at the company, does admit that Perth is essentially a testing ground for what he would like to achieve Australia-wide eventually.

"We just want to build the coolest and fastest network. We absolutely know we can do that in our backyard; Perth's like our beta test," he says.

"I'm sure that that product would be required nationally, but until we perfect it, we're just focused on having the best product rather than spreading everything too thin."

Cloud gaming ambitions

Where Pentanet will be expanding nationally early on though is through its partnership with US-based graphic chip company NVIDIA, as the first to bring the multinational's GeForce NOW technology to Australia during 2021.

Pentanet has an alliance partnership agreement with the $380 billion company, implementing technology that has been around for more than a year now with six million users and counting worldwide.

Cornish explains the most dedicated gamers spend thousands of dollars on their PCs to achieve maximum resolution, very often with the help of NVIDIA's graphics cards, but the future of gaming is going to the cloud so that someone else builds capacity for you.

"With cloud gaming is basically someone like myself becomes a hyper-scaler. I build enough computer power in a data centre that can power thousands of people playing a game at any one time; I'm building a multi-million-dollar computer as opposed to the $4,000 computer," he says.

"This is absolutely where the future is going to be, but the limitation currently is actually on the connection because you need to have internet that's fast enough so that your computer can kind of be off site.

"You need to have that high bandwidth and low latency network to actually enable this cloud technology."

Cornish says the capacity build will be national, with the majority in Sydney in order to service the eastern states.

"As much as we're from Perth - we love Perth and we're a Perth company - we're also Australian and this technology is for all Australians," he says.

"Because our technology doesn't necessarily exist yet over east, we'll be going through the process people will connect to it on other networks, but we'll be able to beta test using those users, and using their feedback we'll be able to determine which areas work and don't work.

"Maybe we'll end up working with other networks and say 'you've got to fix things here or here', and if they can't do it then we will step in and do it ourselves."

How to price an IPO

Cornish has great belief in Pentanet's cloud gaming ambitions, but as it is still unproven he says it was difficult to price the IPO.

"We had to announce it and bring it to market, and still we don't know what it will potentially be," he says.

"How do you put a value on something that doesn't exist yet?

What does exist though is the core business which generated revenue of more than $5 million in FY20, up 166 per cent from the previous year but with a $5.17 million loss in its expansionary phase.

Today the company announced its interim results for the December half with a year-on-year revenue lift of 164 per cent to $4.8 million, and the net loss after tax increased to $11.2 million for the six months alone as Pentanet continues to invest in the network rollout and expenses and one-off IPO-driven staff equity costs.

"These results demonstrate both our ability to rapidly add new subscribers to Pentanet, growing revenue with superior margins whilst delivering superior technical performance for subscribers across our own fixed-wireless network," Cornish said in the update this morning.

Cornish is pleased with the investor response to the IPO thus far.

"I was expecting it would be a good result. But I was certainly pleasantly surprised that it was a very, very good result," he says.

He is optimistic for Pentanet's future as a challenger brand in an established industry.

"The cool thing that separates us at Pentanet is we're kind of like a patchwork quilt of the best talent that's come from all the other telcos," he says.

"People saw early on what we were doing, and you had this really cool talent working for other telcos just doing 'clock in, clock out' kind of work and they weren't being recognised for the talent they were. So they wanted to come to Pentanet and apply themselves.

"We've grown from early on everyone became a stakeholder in the business, so what's really cool and exciting is I sold my house to start the business, but the majority of the company will probably not have a mortgage one day from having actually come along to enjoy the journey, and that just adds so much more firepower to the passion of the people who are working to get the job done."

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