the richest man in atherstone

Plusnet Stock Part I, Part II, Part III

I said last week that I was considering selling my Plusnet shares due to their very poor performance over the last few months. They've fallen from £2.62 to £1.38, nearly halving in value. I've put a lot of thought into it and have decided to hang onto them because I believe they are under-valued at their present price.

What went wrong?
I think that the crash in Plusnet's share price has been caused by the following contributing factors:

1. After rising share prices across the board, all UK markets suffered a correction that saw share prices decrease in value.
2. One of Plusnet's senior engineers cocked up bigtime by accidently deleting emails stored on one of their servers.
3. Competing products offering "free" broadband from TalkTalk and BSkyB have seen customers looking for better deals.
4. Plusnet's Marketing Director, Marco Potesta criticised customers and ex-customers on the ADSLGuide forum.

Okay, so what are the good points?
Falling markets have not just seen Plusnet suffer. Many other companies have also seen their share price fall, although not by as much as Plusnet.

Although one of Plusnet's engineers messed up, the company have been entirely forthright and honest about the whole affair, which is something that I believe sets them apart from their competitors. They always inform their customers of what is happening and hold their hands up when they make a mistake. This is pretty unique within their industry and I, as a customer, appreciate this candidness.

Clever marketing campaigns by TalkTalk and BSkyB have seen many consumers jumping on the "free broadband" bandwagon. However, there are conditions when taking up the offer. Long contracts (18 months) means that consumers are stuck in a deal for a very long time. Conversly, Plusnet's contract is for 1 month only. Technical support is a lot more expensive with TalkTalk. BSkyB's offer is only available for Sky Digital customers and TalkTalk customers must also sign up for their telephone service. Also, both TalkTalk and BSkyB are newcomers to the broadband market so it is not inconceivable there will be 'teething problems' with their products. Plusnet have been in the business for years.

Plusnet have a very low operating cost. They have developed a piece of software called 'Workplace' which automates a lot of their business systems, therefore keeping expenses low. This allows them to be very competitive with their pricing structure and provide many services without the need for human intervention. This asset in itself increases the value of the company.

Plusnet's customer base combined with 'Workplace', their technical expertise and experience in the broadband market make them a very attractive takeover prospect by a larger company. In fact, it wouldn't surprise me if TalkTalk or BSkyB put a bid in for the company!

Putting all these factors together makes me think that Plusnet is seriously undervalued at its present price and that the current problems are temporary. Therefore I will be hanging on to the shares and reassess the situation in 9 months time. When I originally made the purchase, it was with the idea of keeping them for a minimum of a year and I tend to stick by any decisions I make. My only regret is that didn't wait until now to buy the shares.