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
Acquisition of Click Energy Group Holdings Pty Ltd: amaysim Australia Ltd (ASX: AYS) has made a strategic decision and entered into a binding agreement to acquire 100% of Click Energy Group Holdings Pty Ltd, which is an online pure-play energy retailer in Australia. This is on a cash-free and debt-free basis for a total consideration of $120 million and is subject to purchase price adjustments at completion. The transaction is expected to be complete by June 2017. The group believes that this deal would lead to a 20% increase in 2018 earnings per share for AYS on an underlying NPATA basis, post-cost synergies and before transaction and integration costs. The acquisition will deliver annual pre-tax cost synergies of approximately $5 million by the end of FY18F, excluding one-off integration costs. These cost synergies are primarily expected to be generated from efficiencies around customer service, IT systems and processes. Moreover, the acquisition deal would be funded with $40 million scrip, and $80 million as cash consideration to Click vendors funded through a new debt facility with the CBA. The transaction would also enhance AYS’s strategy to provide the multiple services to the Australian households and will align with the vision of becoming the remote control for the smart home. 

Multi-product Approach (Source: Company Reports)
 
Further, the deal would also enhance scale, operating leverage and ability to cross-sell a diverse range of relevant products and services into more households with the combined AYS and Click business to generate FY17F pro forma net revenue of approximately $497 million and pro forma underlying EBITDA of $55 million. Additionally, through the deal there is a significant opportunity for a virtual energy retailer to disrupt the larger incumbent players that own their own generating assets and are burdened with legacy systems and pricing structures. Additionally, Click uses many innovative acquisition channels to offer them with a diversified pipeline of new customers including online channels, strategic channel partners and white label relationships. Click’s strategy and business model is strongly aligned with AYS and the acquisition would enable them to expand its scale, operating leverage and cross-sell by adding an additional 136,000 households to its existing household customer base of approximately 600,000. Over the next few years, AYS has planned to achieve about 300,000 homes with multiple products (NBN, mobile and energy) with a potential average household average revenue of $200 per month. Click offers an opportunity for AYS to diversify its revenue base as part of its multi-vertical strategy. In the combined AYS Group, Click would contribute approximately 13% of total subscribers but account for approximately 43% of revenue. In addition, the funding strategy for the acquisition shows AYS’s commitment to maintain a strong balance sheet and financial flexibility. After completion, AYS expects to have pro forma net debt / FY17F pro forma EBITDA of approximately 1.3x and does not expect the funding arrangement to restrict AYS’s organic growth strategy. Furthermore, the acquisition is not expected to impact AYS’s ability to declare dividends in FY17F. 

Strong alignment of AYS and Click business models (Source: Company Reports)
 
Launching amaysim branded NBN services:AYS is all set to launch broadband offering soon with an initial focus on the 1.03 million subscribers or over 600k households across the amaysim Group aligned to the nbn rollout. The group intends to adopt a multi-product approach to enhance penetration to Australian households firstly through broadband and then leverage this asset base for other verticals. By using their experience in mobile and best of breed IT platforms the group aims to deliver a better customer experience in nbn ability to quickly spin up/integrate new verticals. The group is aiming around 8 million premises which would become NBN-ready by FY20. Meanwhile, the company had made an investment of $0.4 million in 1H17 associated with amaysim broadband and expects a modest full year investment of approximately $3 million to develop and launch the AYS broadband offering in FY17. Moreover, AYS broadband ARPU is expected to be over $62 (ex. GST) based on current plan pricing and allocation of speed-plans in the industry.
 
Outstanding first half of 2017 financial performance:AYS has reported for 564% growth in the statutory EBITDA to $17.3 million in the first half of FY 17 and 38% growth in the underlying EBITDA of $17.3 million. The statutory net revenue grew 17% to $136.6 million. There was 34% growth in the closing mobile subscribers to 1.03 million as at Dec 2016 reinforcing #4 market position. Moreover, the statutory gross profit grew 14% to $40.5 million and incurred the underlying operating costs of $23.2 million. The NPATA grew 29% to $10.3 million. Additionally, in the 1H FY17, there was strong underlying operating cash flow after capex of $18.3 million implying 106% cash conversion of underlying EBITDA. Overall, the business performed well and in-line with management’s expectations, driven by the strong momentum in mobile services. On the other hand, the group’s gross margins fell slightly by 80bps to 29.6% impacted by decreasing ARPU and benefits of past price reviews.
 

First half of 2017 Financial Performance (Source: Company Reports)
 
Outlook:AYS has reconfirmed the FY17F guidance for the mobile business. The FY17 underlying EBITDA for the mobile business is expected to grow to $42 to $44 million. The total AYS Group FY17 underlying EBITDA (including the investment in broadband) is expected to be $40 to $42 million due to the strong growth in the mobile business, sustained low churn and disciplined cost management. Moreover, the group expects their underlying operating expenses inclusive of broadband investment to be flat during fiscal year of 2017 on a year on year (yoy) basis given their focus on operating efficiencies and financial and operational management. The 2017 full year dividend is to be partially franked and expected to represent a full year payout ratio towards the middle of the 60% to 80% of underlying NPATA target. The total dividend for the FY 2017 has been expected to be 10 cents per share (partially franked) up more than 20% on the 2016 total dividend, as per the updates provided with half year result release. Moreover, the strong growth in mobile and further operating efficiencies are expected to drive profitable growth in FY18 Group mobile.
 

FY17F Guidance (Source: Company Reports)
 
Stock Performance: AYS stock has fallen over 8.5% in the last six months (as of April 10, 2017) as the group’s ARPU was under pressure last year. On the other hand, the stock started recovering and generated over 12.14% in the last four weeks. In fact, the stock delivered over 5.4% on April 10, 2017 driven by their Click Energy Group’s acquisition. Moreover, the group expects their gross profit and margins for the second half of 2017 to improve given their potential benefits from price reviews under the wholesale agreement with Optus and product initiatives to grow revenue. The group’s launch of amaysim broadband is a part of their diversification efforts and aims to enhance their share of household wallet during the second half of the year. Although gross margin volatility concerns do prevail a bit, the overall support seems to come in from subscriber growth, cost control efforts, Broadband strategy, brand and product offerings, in general, and strategic acquisition moves that are expected to drive returns going forward. We give a “Buy” recommendation on the stock at the current price of – $ 1.95

 
AYS Daily Chart (Source: Thomson Reuters)

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