ABB - Aussie Broadband

[System]

Aussie Broadband is an Australian owned and operated telecommunications company that was formed in 2008 following the strategic merger of Wideband Networks Pty Ltd based in the Latrobe Valley, Victoria and Westvic Broadband Pty Ltd based in Warrnambool, Victoria.

Aussie Broadband provides nbn™ (NBN) subscription plans and bundles to residential homes, small businesses, not-for-profits, corporate/enterprise and managed service providers. The Company services all states and territories in Australia.

As a licensed carrier, the Company provides these services through:

• a wholesale agreement with NBN Co;
• a mix of leased Backhaul infrastructure from third parties; and
• its own network equipment.

It is anticipated that ABB will list on the ASX during October 2020.

https://www.aussiebroadband.com.au

 

[Dona Ferentes]

This newcomer is another internet service provider and is seeking to raise $40 million for its initial public offering at $1 a share. It has raised $30 million in an underwritten deal with Shaw and Partners at $1 a share, and will raise up to another $10 million via a customer offer, to see it list with a $180.5 million to $190.5 million market capitalisation

Valuation put Aussie Broadband at 12.3-times forecast earnings, on an enterprise value to 2021 forecast proforma EBITDA basis, or 9.9-times operating cash flow, on a market capitalisation to proforma operating cash flow basis.

It claims it will be the country's fifth largest NBN services provider with more than 250,000 customers as at 30 June. The company reckons it will have almost doubled revenue each year for four years by the time the end of the 2021 financial year rolls around. NBN connections were 176.481 at June 30, up from 41,184 two years earlier.

Aussie Broadband reckons it should be able to keep growing quickly. Its NBN market share was 1.4 per cent in 2018, 2.2 per cent last year and 3.5 per cent at the end of June.

The company also has plans to launch a full mobile offering in the coming 12 months.

(so ... an acquirer, or tasty morsel?)

 

[galumay]

I love Aussie Broadband as a provider, I have put over 200 clients onto their NBN service, they have fantastic support, locally based, well trained and they have been very proactive at minimising congestion and running lower contention ratios than probably any other ISP.

BUT....is it an investible business? I cant form an opinion because I haven't seen the prospectus yet, but its very unlikely given that its a sector that has been a long term devourer of investor's capital, margins are tiny, there is very low to non existent switching costs and ISPs are price takers.

What I am concerned about is the pushing of the IPO to customers directly by Aussie Broadband in an email to all customers, this will see a lot of 'mums & dads' with no knowledge of investing, putting their savings into the business just because they are a good ISP.

 

[Dona Ferentes]

What I am concerned about is the pushing of the IPO to customers directly by Aussie Broadband in an email to all customers, this will see a lot of 'mums & dads' with no knowledge of investing, putting their savings into the business just because they are a good ISP.

so far, they will be thinking it is all too easy

IPO at $1.00, today at 11am... sparkling debut. 3 minute chart

 

[over9k]

So did anybody pre-buy? Looks like it was virtually a lottery.

 

[galumay]

I didn't take up the offer, I dont invest in IPOs as a hard rule, the way the IPO was setup was bizarre - as you say, virtually a lottery. Lots of ramming to existing customers which was totally irresponsible IMO, very disappointing for a business that I had admired for its customer focus and ethical integrity.

 

[over9k]

There's a big thread over on whirlpool if you're interested, even the ceo posts in it:

https://forums.whirlpool.net.au/thread/9qqjwxl9?p=-1#bottom

 

[galumay]

Thanks, but I am not that interested!

 

[Dona Ferentes]

Aussie Broadband's core service is NBN retail, a notoriously low margin business that many second-tier telcos have given up on. Telstra, by far the biggest NBN retailer, has repeatedly complained that the high wholesale price means it struggles to make any money at all out of reselling NBN.

MD Phillip Britt said Aussie Broadband overcame this problem by charging at the higher end of the scale, and by efficiencies through its automation systems. Aussie Broadband sells NBN's most popular 50-megabit-per-second plan for $79 a month. TPG, by comparison, charges $69.99.

"We see ourselves as a software company that makes really great automation systems, and that happens to sell broadband," he said, adding that automation allowed it to reduce its own costs and provide competitive customer service.

Mr Britt said he believed Aussie Broadband's selling point was a smooth customer experience, which includes a lag time between signing up and being connected of just a few minutes, where no on-site work is required.
- bears out what you said, @galumay

Mr Britt said the capital raised would ... include laying its own fibre backhaul to 76 of the NBN's 121 points of interconnect, meaning it will not have to lease access to Telstra's backhaul fibre. It estimates the cost of that build, which began in May, at $67 million. Along with the savings on leasing costs, that investment will also allow Aussie Broadband to serve business customers with its own fibre, rather than using the NBN's or another telco's fibre, providing a better margin. Businesses make up around 15 per cent of the company's customer base. “Our own fibre in the ground goes to the heart of our approach to the business. It means that we can control quality and improve our customer experience even more, and it means we can start to drive down our backhaul costs,” Mr Britt said.

 

[kenny]

What's their differentiation from other NBN resellers especially the listed ones like Superloop that would justify the pop on IPO? Customer service is important but not always scalable. Their plan to build backhaul smells worryingly capital intensive.

On the plus side, Phil Britt seems genuinely passionate about being better than his competition and ABB is slowly taking market share (~1%/year) from the likes of Telstra.

 

[galumay]

I think the pop on IPO is just another symptom of the exuberant bubble market currently. As you suggest its a congested sector with no ability to be a price maker and small margins. Adding backhaul will reduce recurring costs but come at the cost of large amounts of capital, so without seeing all the financials its hard to know whether that makes the business better or worse.

Not a sector I have any interest in investing my hard earned capital in. As someone who operates a sub-contracting business in the sector I know the sector intimately and that also informs my opinion.

 

[Dona Ferentes]

Ally Selby (LiveWire Markets): . Next up we have Aussie Broadband, which provides NBN services to residential homes and businesses. Is it a buy, hold or sell?

Nick Guidera: (Eley Griffiths Group):

It's a buy for us. This is one of those emerging telcos that have come onto the market in the back half of last calendar year. They are taking a significant amount of share from the majors.

Ally Selby (LiveWire): It is still quite small though, isn't it like 3.5 per cent?

Nick Guidera: (Eley Griffiths Group):

Yeah, 3.5 per cent. but I think they're taking north of 10 per cent of all subscribers to NBN and they're largely doing that on the back of really strong customer service and a really strong internet service experience as well. And I think customers are demanding that significantly. These guys are also spending a lot on their network, which will ultimately drive the operating leverage in their business and we like what management are about.

Ally Selby: James, over to you. Its share price is up around 50 per cent since it listed in October; is it a buy, hold or sell?

James Dougherty: (Lennox Capital Partners) :

It's a buy for us as well, largely because of the points that Nick made. We really like the management team, importantly the management team did not sell a share in the IPO, they have dripped a little bit out since, but they are still large shareholders in the business. If you take that number that Nick quoted you ... around 10 per cent of NBN churn ... if they do nothing else but just maintain that share and let the natural operating leverage that exists in this business playout, this business will be making in excess of $50 million EBITDA in the next couple of years.

Disclaimer: The information contained in this presentation is general in nature and should not be relied upon. Before making any investment of financial planning decisions, you should consult a licensed professional who can advise you whether the decision is appropriate for you. Contributors to this show may have commercial or financial interests in the companies mentioned.

 

[Stockbailx]

It looks like hedge funds own 8.0% of Aussie Broadband shares. That's interesting, because hedge funds can be quite active and activist. Many look for medium term catalysts that will drive the share price higher. Intertubes Pty Ltd is currently the largest shareholder, with 9.4% of shares outstanding. Phillip Britt is the second largest shareholder owning 9.4% of common stock, and Regal Funds Management Pty Limited holds about 8.0% of the company stock. Phillip Britt, who is the second-largest shareholder, also happens to hold the title of Chief Executive Officer.

On further inspection, we found that more than half the company's shares are owned by the top 7 shareholders, suggesting that the interests of the larger shareholders are balanced out to an extent by the smaller ones.

Rewards​

Trading at 5% below our estimate of its fair value
Earnings are forecast to grow 54.05% per year

Risk Analysis​

Significant insider selling over the past 3 months

 

[Dona Ferentes]

A bit of puff has gone out of ABB growth, it appears (a bit lower than when those pundits rang the bell in March, it would seem)

Highlights:

• Upgraded full year EBITDA forecast to be between $17 million and $20 million excluding IPO costs.
• Implementation and transfer of white label product progressing as planned.
• Fibre rollout continuing to advance in multiple states, with 28 to 31 NBN Points of Interconnect (POI) and data centre sites to be completed by 30 June 2021.
• Downgraded residential connection forecast, impacted by NBN’s significant issues with its appointment system, and its announcement of a further delay to the restart of HFC connections.

 

[galumay]

Interesting reading the notice this morning talking about impact of NBN appointment system issues. The issue is that NBN has cut rates for contractors by 40% and allowed them to opt out of jobs!

So techs have a look, realise its a complex job, no money in it, so reject job!

Worth thinking about the implications not just for ISP's but the head contractors, DOW, SSM etc, the reason the subbie rates have been slashed is because these companies won the new Unify contracts on much worse terms than previously, margins will be much lower.

 

[Dona Ferentes]

4Q FY21 trading update

Highlights:

• 4Q FY21 Revenue grew 8% quarter on quarter
• FY21 EBITDA excluding IPO costs is expected to be at the upper end of guidance ($17 million - $20 million)
• 4Q overall broadband connections increased 7.4% and business broadband connections increased 12% on the previous quarter
• 4Q mobile services increased 20% from the previous quarter, from 18,684 to 22,454 connections
• Signed first white label customer
• Launched services on new Optus mobile virtual network operator (MVNO) agreement.

Outlook
The company achieved a record broadband sales month in July 21 off the back of updated marketing campaigns, new promotional offers and a small number of white label sales late in the month. CVC overage during July increased due to lockdowns in New South Wales, Victoria and South Australia. It is expected that New South Wales will remain in lockdown throughout August and as a result the company will continue to see increased CVC overage in this market. Customer utilisation in some areas peaked 24.5% higher in July than the month prior when they were not in lockdown. On 29 July 2021 NBN announced a CVC rebate to partly offset increased overage charges incurred during the July lockdowns. As a result of the rebate, we expect July’s CVC overage expense to be over budget, but not materially.

 

[Dona Ferentes]

Aussie Broadband has beat its prospectus forecasts for both revenue and earnings during the 2021 financial year, with services growing sharply through the year.

Company revenue rose 84 per cent to $350.3 million, 3.6 per cent ahead of forecasts, while EBITDA climbed 433 per cent to $19.1 million, 55 per cent ahead of forecasts.

Total broadband services grew by 53 per cent to 400,848 during the year.

The pandemic has highlighted the importance of reliable internet in our daily lives, said Aussie Broadband managing director Phillip Britt.

Despite the challenges, our team has continued to deliver great network performance and great customer service to our customers, which are critical factors underpinning our growth.

We are in business to change the telco game, and our staff are doing that each and every day with our high quality network, clever technology and a focus on being good to our customers.

Due to the dynamic and changing nature of the retail telecommunications market, ongoing lockdowns and the impact on CVC expense, the company said it would not provide guidance for FY22.

 

[Dona Ferentes]

In the 4 days since the FY21 Results, ABB has put on 50c, from $3.75 to an ATH of $4.28

There was a bit of a dip straight out from the Ann., but the last 3 days has been onward and upward with barely a retrace.

 

[Dona Ferentes]

In the 4 days since the FY21 Results, ABB has put on 50c, from $3.75 to an ATH of $4.28

On Monday ABB announced a 10 year deal (with two extension options) with Victorian Rail Track, to swap access to their respective fibre networks. The swap significantly increased the reach of the Aussie Broadband network in Victoria.

The company is also in the process of deploying a 1200 kilometre dark fibre network connecting into 78 of the National Broadband Network's points of interconnect. This is expected to be completed in the 2022 financial year. This network is expected to generate $15 million of earnings before interest, tax, depreciation and amortisation improvement from the 2023 financial year.

AND, now the Trading Halt and CAPITAL RAISE :

Less than a year after listing, Aussie Broadband is raising $120 million to accelerate product development and support new opportunities.
The raising will take the form of a $110 million placement to institutional investors and a $10 million share purchase plan. Priced at $4.00 per share, it comes at a 13.6 per cent discount to its last closing price.... .

.

 

[Dona Ferentes]

ASX Limited refers to the following:
A. ABB’s request for a trading halt released on the ASX market announcements platform together with ASX’s market announcement regarding the trading halt at 8:24am AEST on 7 September 2021. The trading halt was requested ‘until an announcement is made in relation to the outcome of a potential capital raising...’
B. The article titled ‘Aussie Broadband taps Shaw and Partners for $120m raising’ published by the Australian Financial Review at 8:51am AEST on 7 September 2021 which contained specific details of the capital raising, including the quantum, pricing, form and manager of the capital raising.
C. ABB’s announcement titled ‘Aussie Broadband completes $114m institutional placement to accelerate growth strategy’ released on MAP on 8 September 2021 in which ABB disclosed a placement to institutional, sophisticated and professional investors and a share purchase plan to raise up to $10m.



1. Please explain how the information in the Announcement appeared in the Article.

ABB has no knowledge about how the information contained in the Article was obtained by the Australian Financial Review. ABB confirms that it did not provide the information in the Article to the Australian Financial Review, nor did it authorise the information for release to the Australian Financial Review, whether on an embargoed basis or otherwise. ABB confirms that neither it nor its officers were consulted or had contact with the journalist in relation to the preparation of the Article.