Tucows released it's Q2 report on October 6 and the report was a sign of what is to come for Tucows down the road.Firstly and importantly Tucows acquired a new credit facility from the Bank of Montreal replacing it's old credit arrangement with Royal Bank.The new credit facility is for $240 million with an accordion arrangement for another $60 million.Tucows tells investors that it got lower contributions from it's domain names business but is getting some contribution from Ting ,it's mobile internet service,and increased contributions from it's new internet business called Wavelo.Wavelo seems to be an extension of Ting.Ting and Wavelo
Both Ting and Wavelo are mobile internet services;it appears that Wavelo is a subsidiary of Ting. Ting was sold to Dish Network and Tucows only has a residual interest left.Yet it is still claiming some net income from it's remaining position.Wavelo is Ting's subsidiary that is showing growth in revenues and net income.But how much equity can they possibly have in this new internet service company which appears to be controlled by Ting that is owned by Dish.On the other hand it is likely that Tucows picked up some equity in Dish from the sale of Ting.It is also likely that Dish picked up some equity in Tucows in this transaction.
On the other hand it is likely that Tucows picked up some equity in the much bigger Dish.This blog believes this is stabilizing TC's share price.
A Future Scenario
Dish has a market cap of about $5.5 billion and could easily acquire the much smaller Tucows.But it is unlikely that a network operator (Dish) would be interested in a retail seller of domaine names.The common interest of these two companies is Ting and Wavelo.Although Tucows has fallen from it's former price of $100 it can still raise equity from it's narrow capital base.And it has a new credit facilty of $300 million.Reinvesting in Ting and Wavelo would make Tucows more interesting to Dish and Canadian investors.Failing that Tucows must find another Ting to bolster it's domaine name business.Tucows would have little difficulty in raising $25 million in new equity or 1 million new shares at $25 apiece.Putting this together with $75 million from their new credit facility would give them $100 million to create a new subsidary fot TC.This would create a lot of investor interest in TC.Otherwise TC will stay in it's present trading range.
Dale Mcintyre M.S.Sc(econ.) is a free lance writer that writes on various stocks that trade on the TSX.
