Small Caps | Nov 05 2015
-Price reductions to main plans
-Some revenue pressure acknowledged
-Opportunity seen in industry consolidation
By Eva Brocklehurst
Amaysim Australia ((AYS)), has launched more competitive mobile plans, viewed by brokers as a sign of the strength of its wholesale contract with Optus and sustainability of its business model in the face of increased competition.
The main changes to the company's plans are reductions in price for the unlimited 5GB and 8GB plans and addition of 300 minutes of standard international calls to its $44.90 5GB plan. Guidance has been reiterated for FY16, with unit revenue pressures expected to be offset by lower operating expenditure.
Goldman Sachs believes the more competitive plans will reduce the risk of margin pressure from rising data usage. The new plans are expected to be negative for near-term revenue but should be offset by increased penetration of unlimited plans, greater up-selling and improved subscriber growth.
The broker reiterates a Buy rating, predicated on strong earnings growth (FY15-18 expected to be up a compound 49%) and a supportive valuation. Goldman also believes the stock offers long-term value as either a target or as an acquirer of other telcos. Goldman's target is $2.95.
Macquarie, too, believes this is an improved competitive offering that will re-instate amaysim as a value leader in the segment, but will place some pressure on revenue. The new plans are expected to reduce amaysim's exposure to increased data consumption from customers over time, Macquarie notes. The broker suspects Optus will absorb around 70% of any revenue per unit hit from the new pricing in its wholesale business.
The company also maintains that, despite the revenue pressure, earnings in FY16 will be supported by rising online customer engagement and operational efficiencies. Essentially, Macquarie envisages amaysim is expecting that cost reductions will provide a buffer amid a structural shift to online interactions.
Macquarie also suspects there is an opportunity for amaysim to pick up additional subscribers as TPG Telecom ((TPM)) transitions its MVNO (mobile virtual network operator) base to Vodafone in a deal which also extends its fibre network. Amaysim may also benefit from any fall-out emanating from Yatango Mobile entering administration.
The broker makes no material changes to FY16 estimates but has downgraded its rating to Neutral from Outperform, given the stock's recent strong performance. Target is $2.45.
See also, Stellar Performance Expected from amaysim on August 4 2015.
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