A Step Change In Earnings For BigAir

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– BigAir achieving both organic and acquisition-driven growth 
– Step change in earnings expected in FY12
– Microequities upgrades to a Strong Buy rating

By Chris Shaw

BigAir Group ((BGL)) owns and operates fixed wireless broadband networks and has network infrastructure covering the Sydney, Melbourne, Brisbane, Perth, Adelaide, Newcastle and Gold Coast markets.

Leading into full year results later this year, management at BigAir has lifted earnings guidance by 30%. A result of $5.2 million in EBITDA (earnings before interest, tax, depreciation and amortisation) terms is now expected. According to Microequities, the lift in guidance reflects continued strong organic growth in the Fixed Wireless and Managed Accommodation ISP businesses. 

Interim earnings highlighted the strength of BigAir's organic growth, Microequities noting the result showed a 51% increase in revenues compared to the previous corresponding period. Earnings in EBITDA terms rose 32% for the half.

Also contributing to earnings are recent acquisitions, as this year has seen the purchase of both Clever Communications and AccessPlus. The former adds to BigAir's IT offering, which Microequities sees as delivering significant cost savings and margin expansion potential from FY12 thanks to operating expense savings and network integration.

The AccessPlus purchase continues BigAir's push into the student accommodation sector, a market Microequities sees as attractive given significant scope for an increased user base. AccessPlus also offers the potential for realisation of cost efficiencies, as BigAir will have a chance to integrate its existing fixed wireless backhaul network and broadband offerings.

To factor in the Clever and AccessPlus deals on top of the stronger organic growth being achieved, Microequities has lifted revenue growth forecasts for BigAir. With EBITDA margin expansion to 45% in FY12 from 35% in FY11 also expected, there are accompanying increases to earnings estimates for BigAir.

The impact is most significant in FY12, Microequities expecting a watershed year as earnings are boosted by full year contributions of the Clever and AccessPlus acquisitions. Forecasts reflect this, Microequities expecting earnings before interest and tax (EBIT) of $2.83 million this year and $7.22 million in FY12. This compares to EBIT of $2.19 million in FY10.

Assuming Microequities is on the mark with its earnings estimates, BigAir would be trading on an FY12 enterprise value to EBITDA multiple of 2.6 times. Microequities sees this as a very low multiple, especially given the step change in earnings expected in FY12.

With value on offer Microequities upgrades BigAir to a Strong Buy from Buy previously, with an increased price target of $0.30, up from $0.26 previously. Given a market capitalisation of just under $30 million BigAir is not covered by brokers in the FNArena database, meaning no basis for comparison of ratings or forecasts.

Shares in BigAir today are unchanged with a last sale price of $0.20 in an overall very negative market on Monday. Over the past year the stock has traded in a range of $0.15 to $0.22.
 

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