Public Markets For the second straight reporting period the FOCUS ...
Public MarketsFor the second straight reporting period the FOCUS Tele- com Business Services Index (TBSI) managed a positive return but still underperformed the broader indices. The TBSI gained 1.0% over the past three months, but the S&P 500 and NASDAQ gained 8.5% and 11.0%, respectively, over the same time frame. The TBSI remains in negative territory for the full year period with a drop of 5.7%. Once again this compares unfavorably to strong gains in both the S&P 500 (up 13.0% year-over-year) and the NASDAQ (up 39.6% year-over-year).The sector revenue multiple held steady compared to the year-ago period at 0.6x. However, the sector EBITDA multiple has declined over the past 12 months from 8.5x to 7.4x.
Public MarketsFOCUS’ Carrier-Focused Telecom Technology Index (CFTTI) returned to the red this period with a three-month loss of 1.3%. This looks particularly bad in the context of the performance of the broader indices, with the S&P 500 up 15.0% and the NASDAQ up 24.1% over the corresponding time period. The sector still remains in positive territory for the full year with a 12- month gain of 3.1%. Even so, this gain significantly underperformed both the 19.9% gain in the S&P 500 and the 46.9% gain in NASDAQ over the past year. Multiple performance for the CFTTI is mixed.The sector revenue multiple ticked up slightly from 2.2x a year ago to 2.3x currently, while the sector EBITDA multiple declined from 11.9x to 11.3x.
Public MarketsAfter dipping slightly in our spring report, the Enterprise-Focused Telecom Technology Index (EFTTI) roared back in our summer period to past a three-month gain of 23.9%. Every single sub sector in the index was in positive territory, and three of the five sub sectors posted double digit gains.The EFTTI’s gains compared favorably to both the 12.3% gain in the S&P 500 and the 20.9% gain in the NASDAQ over the corresponding time period.This period’s strong performance was also good enough to bring the sector into the black for the full year period with a gain of 10.4%.This is on par with the year-over-year gain in the S&P 500 of 9.8%, but significantly lags the 31.4% gain in the NASDAQ. Sub sector multiples recovered nicely and are now higher than they were this same time last year. The sector revenue multiple increased from 4.8x to 5.3x, while the sector EBITDA multiple inched up from 20.0x to 20.9x.
The United States Military is increasingly focused on electronic warfare and cyberattack defense. These priorities are reflected in the Department of Defense (DoD) budget as well; 40% of the DoD’s military budget is allocated towards the procurement of military electronics and technologies. A large amount of capital must be spent on the upgrades needed to achieve this level of modernization, a primary driver of demand within this space. The DoD is expected to invest approximately $30B in electronic warfare capabilities over the next 3 years.The military’s shift from physical fighting to electronic warfare and cybersecurity has created M&A opportunities for industry players, who are growing their companies by acquiring smaller companies with specialized capabilities within the C4ISR space.
Public MarketsThe FOCUS Telecom Business Services Index (TBSI) benefitted from the overall market correction to March’s downturn and grew 17.4% over the past three months. Despite this strong performance, the sector still underperformed both the 20.0% gain in the S&P 500 and the 30.6% rise in the NASDAQ over the corresponding time period.The trend is similar for the full year period as the TBSI dropped 2.5% compared to 5.4% and 25.6% increases in the S&P 500 and NASDAQ indices, respectively. The sector revenue multiple held steady compared to this same time last year at 0.6x. However, the EBITDA multiple for the sector fell from 8.6x a year ago to 7.4x currently after a March low of 5.9x.
The FOCUS Communications Service Provider Index (CSPI) rebounded strongly from the steep decline in our spring report to post a gain of 10.4% in the past three months. Even so, this period’s gains still did not erase all of the losses from the spring. In addition, the CSPI also significantly underperformed both the 20.0% gain in the S&P 500 and the 30.6% gain in the NASDAQ over the corresponding time period. The sector also underperformed the broader indices for the full year as the year-over-year loss of 3.3% in the CSPI compares unfavorably to both the 5.4% gain in the S&P 500 and the 25.6% gain in the NASDAQ. Sector multiples are largely consistent with where they were a year ago. The sector revenue multiple dipped slightly from 2.8x to 2.7x, while the sector EBITDA multiple held steady at 7.8x.