The Aussie Broadband Ltd (ASX: ABB) share price is up around 13% after the business gave an update about its FY21 progress.
As the name might suggest, Aussie Broadband is a telecommunications business. It’s focused on NBN subscription plans to residential homes and other clients. Aussie Broadband also offers other services including VOIP, mobile plans and entertainment bundles with its partnership with Fetch TV.
HY21 update
Looking at broadband connections, the company finished December 2020 with 313,193 residential broadband connections which was up 30% over six months and up 86% over twelve months.
With business broadband connections, Aussie Broadband ended the FY21 half-year period with 29,441 connections – up 49% over six months and 113% over 12 months.
In total, Aussie Broadband finished HY21 with 342,634 connections, representing total growth of 31% over six months and 88% over the 12 months.
Profit expectations
Aussie Broadband also said that based on preliminary, unaudited management accounts, it’s expecting half year EBITDA (EBITDA explained) to be in a range of $6.9 million to $7.4 million. Excluding IPO costs, the HY21 EBITDA guidance is for a range of between $8 million and $8.5 million.
Could Aussie Broadband for a long term investment idea?
I think Aussie Broadband is a very interesting business. Utilities, like telecommunications, can provide a good level of regular profit each year. Most of us access the internet for work and/or entertainment and communication. That’s not going to change.
Aussie Broadband’s existing profit is quite defensive. But there are many telecommunications providers out there, it’s a competitive industry. And the NBN is a partner that takes a lot of the margin itself. There’s a reason why the profit margin of Telstra Corporation Ltd (ASX: TLS) and TPG Telecom Ltd (ASX: TPG) is steadily shrinking.
Aussie Broadband seems to have the scale to be making decent profit, but even so, it’s got a market capitalisation of around $500 million and doubling its good-case half-year underlying EBITDA comes to $17 million.
How long will the user numbers continue to grow at a strong double digit pace? It’ll have to take a good amount market share over the next few years.
I like the idea of Aussie Broadband expanding in other telecommunications categories like mobile and building its own private fibre network.
However, with the ABB share price already rising strongly – up almost 50% in 2021 – I think I’d rather just wait for a better entry price, or to see more proof of higher margins and profit growth.
There are other ASX growth shares I like the valuation of more such as Pushpay Holdings Ltd (ASX: PPH). Macquarie Telecom Group Ltd. (ASX: MAQ) could be one to watch in the telco space.
