The point that the investor should first of all take notes of is that Global Traffic Network is a “holding” company and does no business of its own. It has operations in Australia and Canada both run by different companies whose promoters are the same as in GTN. After the IPO both these companies shall become fully owned subsidiaries of GTN and the financials discussed are such that they reflect the ownership change post IPO.

Global Traffic Network provides customized traffic and news reports to radio channels in Australia. Going forward the company will provide such information to radio channels in Canada as well, which is expected to start generating revenues from Jan 2006. In exchange for these services the radio channels provide GTN with commercial airtime inventory or advertisement slots, which GTN in turn sells to advertisers. GTN provides all the necessary infrastructure and incurs all the costs related to the preparation and transmission of traffic and news reports and because of that the radio channels incur no out of pocket costs while contracting for GTN’s services.

GTN provides traffic reports to various radio stations and has also commenced providing general news to the radio stations. In addition to this the company also provides video news to various television channels. Because of the fact that the company’s aircraft are already in the skies they happen at times to be the first one to arrive at the scene of breaking news and thus the company is leveraging this to its advantage by providing video coverage of breaking news.
For the quarter ended 30 September 2005 89% of GTN’s revenues were from advertising slots sold through the radio channels. The remaining was through advertising slots in the television space. All of these revenues accrued in Australia. And Canada, as a region has not started to contribute any revenue as yet.

Financials

The revenues of GTN have increased consistently in the last three years from around 5.7 million in 2003 to 15.3 million in fiscal 2005. The net profit has also increased in the same time from 0.8 million to 1.4 million in the last fiscal. In 2004 however the profit was just 0.1 million. The significant decrease in net income in fiscal year 2004 compared to fiscal year 2003 which resulted primarily because of incurring approximately $5.5 million of additional operating expenses in connection with the addition of Austereo Pty Ltd, the largest radio broadcaster in Australia (“Austereo”) as an Affiliate to GTN’s network. Although increased revenues during fiscal year 2004 resulting from the addition of this Affiliate did not offset the additional expenses incurred, the addition provided increased commercial airtime inventory that was responsible in part for a 37.5% increase revenue in the subsequent fiscal year (approximately $15.4 million of revenues in fiscal year 2005 compared with approximately $11.2 million in fiscal year 2004).
However in the last fiscal this expense has been controlled and the topline has grown greater than the operating expenses to boost profitability. The current EPS stands at 17 cents a share.

Conclusion

The business is novel and seems to be on the growth stage with the model being tested and proved in Australia and now being expanded to Canada. The maximum proposed price at 6 dollars is however nowhere close to modest for such a business, which does not have a long history to it and also from a standpoint of earnings which are relatively low as currently the EPS is just 17 cents.