Company overview - amaysim Australia Limited is an online-led mobile service provider (MSP), with over 966,000 subscribers. The Company is engaged in providing mobile telecommunication services. The Company offers a range of subscriber identity module (SIM)-only mobile phone plans and data plans, which are provided by the Optus Mobile Network. It contracts directly with its subscribers, providing in house created mobile voice and data plans under the amaysim brand name, which uses the Optus third generation (3G) and fourth generation (4G) networks. Its range of 4G plans are powered by the Optus 4G Plus network, and it also offers AS YOU GO plan and FLEXI plan. Its data plans include 2.5 gigabyte (GB) Data Plan, 4GB Data Plan and 10GB Data Plan, and its mobile plans include UNLIMITED 1.5GB, UNLIMITED 3GB, UNLIMITED 7GB and UNLIMITED 9GB. The Company offers prepaid and postpaid options for all plans, and its SIM packs are available online at www.amaysim.com.au and from over 12,000 retail outlets.

AYS Details

Significant progress in diversifying into new product areas: For FY17, amaysim Australia Ltd.’s (ASX: AYS) statutory net revenue grew by 29% to $326.7 million and EBITDA increased by 35% to $33.8 million. Statutory gross profit increased by 16% to $99.1 million while underlying EBITDA increased by 23% to $43.5 million. Accordingly, underlying NPATA grew 16% to $25.2 million. On the other hand, the company managed expenses diligently with underlying operating costs in the mobile business of $45.9 million, down 8%. However, total underlying operating costs were $55.5 million, up 11%, due to the launch of new vertical businesses. Group’s strong underlying operating cash flow after capex of $38.9 million led to 89% cash conversion of underlying EBITDA. While maintaining momentum in core mobile business, AYS made significant progress with regards to diversifying into new product areas to capture a greater share of household wallet. Importantly, the group has launched amaysim branded nbn plans; the Vaya online device store; and has proceeded well with the acquisition of Click.
 

Financial summary; (Source: Company reports)
 
Strong growth in mobile subscribers and low churn: AYS has 1.074m subscribers as at 30 Jun 2017 with average monthly churn of 2.0%. Further, amaysim recorded one of the lowest levels of complaints across mobile service providers and received a 93% referral rate from customers. Moreover, amaysim and Vaya mobile plans were recognized for their value and customer-first approach with award winning mobile plans and subscriber experience. During the year, AYS leveraged Network Services Agreement (NSA) with Optus NSA and supported a competitive edge in a dynamic market. Along with its diversification efforts, the group continued to improve and leverage its technology platforms to support organic and profitable subscriber growth.
 

Group mobile average monthly churn; (Source: Company reports)
 
Solid FY17 performance for mobile business: The amaysim Group mobile business had a robust year and delivered statutory net revenue growth of 10% to $278.5m driven by growth in mobile subscribers (up 11%) due to competitive plans and customer satisfaction. Strong growth of 21% in underlying EBITDA to $43.1m was driven by solid revenue growth and disciplined cost management with EBITDA margin up 150bps to 15.5%. Additionally, mobile underlying operating expenses were down 8% predominantly driven by a reduction in marketing costs with a decrease in campaigns in FY17 and an increased focus on performance-skewed marketing while the group delivered a low cost-per-subscriber. However, average revenue per user (ex. GST) (ARPU) declined 11% to $22.46 as the impact of FY16 product initiatives to grow subscribers and reduce churn flowed through in FY17. During 2HFY17, ARPU stabilized and increased to $22.54 (1H17: $22.37) driven by migration of subscribers to higher value plans and strategic initiatives to grow revenue.


Mobile segment performance; (Source: Company reports)
 
Taking advantage of the structural shift in consumer expectations: The telecommunications sector is continually experiencing a structural shift as consumers are demanding the freedom obtained by de-coupling their phone from their mobile plans and the desire to easily switch plans as their needs change. Accordingly, amaysim’s bring-your-own device, no-lock in contract, online-led mobile offering has positioned it to take advantage of the structural shift in consumer expectations and demand. It’s market leading position in the segment has created a strong competitive edge and enabled the company to deliver robust organic growth in subscribers at 11% to 1.074 million and a low churn rate of 2.0%. Notably, the churn rate was driven by industry high customer satisfaction with amaysim again recording one of the lowest levels of complaints in the industry. Further, the company continues to benefit from strong, mutually beneficial and long-term relationship with Optus, supporting its competitive positioning.


Group mobile closing subscriber base; (Source: Company reports)
 
Improvement in nbn ARPU to be driven by product mix over the long-term: The group acquired AusBBS in August 2016, and this helped AYS in accelerating its broadband strategy and provided the Company with access to a proven proprietary platform for broadband. The AusBBS team and its technology have been successfully integrated into the business. Further, in May 2017, amaysim celebrated the soft-launch of its nbn product which is performing in-line with expectations, with a focus on marketing to its existing subscriber base. The Company experienced early success with good flow of sales and over 1,000 nbn subscribers activated over May and June 2017 at an ARPU of approximately $68, bringing total subscribers for broadband to approximately 5,000 as at 30 June 2017. Importantly, it expects nbn ARPU over the long-term to migrate towards $62 driven by product mix. In line with 2017 financial year guidance, broadband segment achieved an underlying EBITDA loss of $2.6 million. However, the company is differentiating its nbn experience by offering a market leading technology platform. Particularly, its activation efficiency is one of the fastest in the market, enabling existing amaysim mobile customers to order direct from their computer or phone in just a few touches of a button.
 

Broadband segment performance; (Source: Company reports)
 
Energy segment led by solid uptake in Victoria and New South Wales: In addition to the launch of amaysim nbn, the company achieved a significant milestone by completing the acquisition of Click in May 2017. Since then, Click has experienced strong subscriber growth closing the year with approximately 165,000 accounts (up 25% on the 2016 financial year) driven by solid uptake of dual-fuel households in Victoria and New South Wales. This resulted in a strong 2-month positive contribution from Click with statutory net revenue of $45.7 million, statutory gross profit of $10.0 million and underlying EBITDA of $3.1 million. The company anticipates energy as a terrific product line to cross-sell to over 800,000 of its household customers. Notably, there is a significant opportunity for a virtual energy retailer to disrupt the Australian energy market as public awareness of energy costs increases and consumers seek better service, price and more transparency. Importantly, the company expects to deliver approximately $5 million in cost synergies and anticipates the acquisition to be 20%+ EPS accretive for shareholders on an underlying NPATA.
 

Energy segment performance; (Source: Company reports)
 
Witnessing decent momentum across its product verticals: FY18 has started well as the company is witnessing good momentum across its product verticals while expecting further growth. AYS’ three priorities for the year are to continue to develop and leverage its technology platform, increasing subscribers and capturing its share of household wallet through cross-sell. Additionally, it will be incorporating energy into its single sign-on platform, to complement the existing amaysim branded mobile and nbn capabilities. Further, it will tap into subscriber demand for affordable energy and devices by launching amaysim energy in the first half of the 2018 and the amaysim online device store later in the 2018. In the year ahead, subscribers will be able to order mobile plans, devices, energy and nbn, with ease as it is taking convenience and simplicity to a new level. Primarily, the plans underfoot for upcoming campaign will increase its share of voice and presence in the mobile, energy and nbn markets. With a strong suite of products, unique and scalable technology platform and a high customer satisfaction level, AYS is well-positioned for sustained growth in the 2018 financial year.

Stock Performance: The stock has moved up 10.7% in the past four weeks while it is down 2% in the last one year as on September 04, 2017. The group has launched amaysim broadband as a part of the diversification plan and aims to increase its share of household wallet going forward.  Further, the launch of amaysim energy in the first half of the 2018 and the amaysim online device store later in the 2018 augur well for the company. With respect to the latest acquisitions, the group seems to have paid a fair price and there is scope for upside based on synergies with many cross-selling initiatives. We give a “Buy” recommendation on the stock at the current price of $1.87
 

AYS Daily Chart (Source: Thomson Reuters)
 

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