Fibre Expansion And Symbio Acquisition Will Strengthen Future Market Position

Key Takeaways

• Expansion of the Aussie Fibre network and Symbio acquisition are poised to enhance revenue, margins, and diversify income through cost efficiencies and high-margin services.
  
• Technological investments and strong capital management support operational efficiencies, shareholder value, and growth in high-speed broadband connections.
  
• Leadership uncertainties, inflationary pressures, and competitive market dynamics may challenge future earnings stability and net margins for Aussie Broadband.

Catalysts

Provides telecommunications and technology services in Australia.

• The expansion of the Aussie Fibre network, which will provide greater control over connections and cost efficiencies, is likely to boost both revenue and net margins by reducing dependency on third-party infrastructure and improving the profitability of on-net services.
  
• The addition of Symbio to the group is expected to diversify revenue streams and improve overall earnings, with a focus on high-margin Tier 1 voice networks and the anticipated delivery of $38 million EBITDA contribution in FY '25, reflecting substantial earnings growth.
  
• Investments in technological infrastructure, such as the new internal cloud platform and increased voice capacity, are anticipated to provide operational efficiencies and cost savings that will enhance net margins and overall financial performance.
  
• The strategy to enhance the digital experience and continue aggressive expansion in high-speed broadband connections over 100 mbps places the company well to capitalize on industry trends towards higher-speed services, driving future revenue growth in the residential segment.
  
• The company’s strong cash position and prudent capital management, including plans for share buybacks and special dividends, are expected to yield enhanced shareholder value and support earnings per share growth in the future.

Aussie Broadband Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Aussie Broadband's revenue will grow by 11.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.6% today to 4.5% in 3 years time.
• Analysts expect earnings to reach A$62.5 million (and earnings per share of A$0.22) by about February 2028, up from A$26.4 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting A$75.3 million in earnings, and the most bearish expecting A$55.0 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.2x on those 2028 earnings, down from 44.6x today. This future PE is lower than the current PE for the AU Telecom industry at 42.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.2%, as per the Simply Wall St company report.

Aussie Broadband Future Earnings Per Share Growth

Risks

• The imminent retirement of Phillip Britt, the Managing Director, may lead to uncertainties in leadership that could impact strategic decisions, potentially affecting future earnings.
  
• The reliance on large capital expenditures for infrastructure and capacity expansions could strain cash flow and impact net margins if projected returns are not realized as planned.
  
• The competitive pressures in the market, as indicated by promotions impacting Buddy's growth, suggest challenges in maintaining and increasing revenue if pricing wars intensify.
  
• Inflationary pressures and the cost of living challenges have necessitated tight controls on spending, which could constrain future operational expansions and impact net margins.
  
• The timing mismatch between wholesale price changes and cost allocations, resulting in margin pressure, highlights risks in operational efficiencies that could affect future earnings stability.

Valuation

• The analysts have a consensus price target of A$4.108 for Aussie Broadband based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$4.55, and the most bearish reporting a price target of just A$3.62.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$1.4 billion, earnings will come to A$62.5 million, and it would be trading on a PE ratio of 23.2x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of A$3.98, the analyst price target of A$4.11 is 3.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.