Aussie Broadband Unveils Ambitious Plans

Small Caps | 10:00 AM

Following Aussie Broadband's in-line third quarter and management's strategic update, brokers remain confident in the outlook.

-In-line trading update by Aussie Broadband
-Management's FY28 strategic ambitions
-NBN rollout and speed tier changes set to benefit
-UBS sees capital management upside

By Mark Woodruff 

Australian NBN challenger Aussie Broadband ((ABB)) last week held its Investor Day where management displayed confidence in the near-to medium-term outlook by outlining strategic ambitions for the next three years, targeting ongoing growth and diversification across all operating segments.

The ambitious telco also provided a third quarter trading update showing the company's best organic quarterly net growth in connections in the last three years, taking market share to 8.1% of on-net NBN services, up from 7.8% in the first half of FY25.

Despite the strong update on connections, broker Wilsons doesn't anticipate any meaningful changes to consensus forecasts, with management re-iterating FY25 guidance for underlying earnings and capex.

Looking further out, analyst remain upbeat.

According to Jarden, the company is well placed to benefit from both the NBN Fibre Connect rollout and the September 2025 speed tier changes, meaning subscriber growth could accelerate through 2025.

Involvement in the NBN rollout will enable customers to upgrade to Fibre to the Premises (FTTP) from older NBN technologies.

Aussie Broadband resells NBN broadband across Residential, Enterprise & Government customers and provides Wholesale services to other telecommunications companies and managed services providers. 

In February last year, the company acquired communication SaaS provider Symbio to supplement existing offerings by focusing on unified communications, voice, and messaging services. 

Budget brand Buddy was launched in 2024 as a standalone, digital-first strategy and is serving as the preferred incubator for innovation, notes Wilsons.

Analysts explain Aussie is trialling new ideas and features on the Buddy platform which could, in time, be integrated into the core Aussie Broadband brand.

In comparison to the majority of larger peers, Aussie's retail prices are attractive particularly considering ownership of its fibre network, highlights Citi.

Speed tier changes

Management believes Aussie is well-placed to capitalise on the NBN speed changes coming up in September (e.g. 50Mbps plans shift up to 100Mbps plans and the 100Mbps plans shift up to 500Mbps plans). 

In anticipation of these changes, Aussie launched its "Pro" range of services last August for 250/100, 500/200 and 1,000/400 speed tiers to build both brand and awareness leading up to the formal launch this September.

While the company ranks as the fourth largest retail service provider (RSP) in Australia overall, it is the third largest for higher-speed plans, where demand is expected to grow steadily.

Citi's positive view is supported by subscriber growth outpacing the broader market, a sequential increase in average revenue per user (ARPU), plus upside potential in voice services.

Aussie Broadband operates as a Mobile Virtual Network Operator (MVNO) in Australia, leveraging Optus' 4G and 5G networks to deliver mobile services. Goldman Sachs explains management is increasing its focus on mobile after resigning its Optus MVNO agreement. 

Telstra Group ((TLS)), Optus and TPG Telecom ((TPG)) operate as Mobile Network Operators (MNOs), with market shares of around 42%, 28% and 17%, respectively, owning and managing their own extensive telecommunications infrastructure.

At the time of first half results in February, Ord Minnett noted management's track record at deploying capital for accretive outcomes via its fibre backbone build.

Fibre monetisation for Aussie across on-net and near-net will come down to utilisation and management's ability to transition customers from the NBN network, suggests the broker.

To the uninitiated, on-net and near-net refer to the proximity and ownership of network infrastructure for delivering services.

On-net refers to locations directly connected to Aussie's own fibre network or infrastructure, where Aussie has direct control over bandwidth and capacity, whereas near-net describes locations close to the company's existing fibre infrastructure but not yet directly connected.

Jarden's key takeaways from the Investor Day included: the growth engine (Residential) is re-accelerating with strong organic growth driven by structural tailwinds (NBN); and further upside from mobile MVNO expansion.

Terminal MVNO market share could be as high as 15-20% from 12% currently, highlights Citi, noting management's ambition is to double mobile subscribers by FY28 riding MVNO's accelerated growth wave.

Capital management 

Jarden expect Aussie to continue its buyback following the investor day, providing further valuation support for the share price, along with strong operating momentum.

UBS agrees the company's strong balance sheet supports additional shareholder return potential such as through buybacks and special dividends.

Trading update

Subscribers grew by 3.3% quarter-on-quarter due to stronger-than-expected growth trajectories in the Residential, Business, and Enterprise & Government segments, partially offset by a lower-than-expected growth trajectory for Wholesale, explains Citi.

For the quarter, Aussie added 24,279 net connections, a 29% increase on the prior year, or 12% excluding Buddy.

Financial year-to-date connections are running at around 68,000 connections.

For Buddy, connections grew by around 50% to 9,695 from the 6,484 at the close of 2024, but the goal of 100,000 subscribers by the end of 2027 still looks challenging to Wilsons.

Goldman Sachs notes Buddy achieved growth despite the ongoing competitive intensity during the period, particularly from Origin Energy ((ORG)), AGL Energy ((AGL)) and Optus.

Look-to-28 strategic ambitions 

By 2028, revenue of greater than $1.6bn is being targeted, which, as UBS explains, represents a 7% beat against market consensus. 

Diversification of revenue is to be maintained with the Residential segment expected to contribute less than 60% of total group revenue.

Management is also aiming for 1m NBN connections compared to the consensus expectation for 915,000.

Earnings (EBITD) margins of at least 12.5% are expected, implying FY28 EBITDA of greater than $200m, in line with the consensus forecast.

The most alarming/confusing target was for at least a 20% three-year statutory EPS compound annual growth rate (CAGR) over FY25-28, implying to UBS around 19cps when consensus is sitting at 28cps.

While this target initially implied a material capex step-up, management later explained go-forward capex was in line with expectations at between -$55-60m.

UBS explains company EPS growth targets were not factoring in EPS accretion from the ongoing 10% share buyback, with the broker forecasting statutory EPS of 29cps, implying a three-year EPS CAGR of 30%.