A fund manager has singled out one small cap ASX-listed telecommunications business as capable of a 40% rise in share price to match its valuation.
Montgomery Investment Management founder Roger Montgomery told his subscribers that Macquarie Telecom Group Ltd (ASX: MAQ) is a structural winner.
"Structural winners might be part of a global megatrend, have long runways for growth, are disruptive and/or market share takers with a long-term total addressable market that is theirs to lose."
The Macquarie share price has dipped in recent times. It started the year above $52 but was trading at $50.75 at the market close on Monday.
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Priced as yesterday's hero
Montgomery said the market seems to perceive Macquarie as a winner only during COVID-19 when demand for telco services was at a peak.
"Experience tells us the patient will be rewarded," he said.
"Our valuation estimate is currently circa $70."
If the share price rose to match Montgomery's valuation estimate, it will have grown almost 40% from current levels.
The fund manager explained that Macquarie recently separated its cloud services/government (CSG) and data centres (DC) into distinct divisions to help investors see the growth in each.
The company also has a telecom arm, which sells data, voice and mobile.
"Data centres' revenue and earnings are what we see as the crown jewels," said Montgomery.
"The wholesale customer at [data centre] IC3 East is expected to commission its contracted capacity next financial year and billings, and therefore earnings from it will emerge the year after."
He isn't the only analyst bullish on Macquarie. Just a few weeks ago, Canaccord Genuity rated the stock as a buy while slapping on a price target of $68.
About Macquarie Telecom
Just last month, Macquarie terminated its mobile wholesale supply deal with Telstra Corporation Ltd (ASX: TLS) to switch to rival Optus.
Macquarie was founded in 1992 upon the deregulation of the telecommunications industry in Australia.
The company listed on the ASX in October 1999 and currently has a market capitalisation of just over $1 billion.
