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 to enhance the scale and operating leverage: Acquisition of Click Energy is a significant milestone in the transformation of company as it increases connectivity to the Australian household and complement its existing suite of mobile and broadband products. Click is a Melbourne based online energy retailer offering electricity in four states (Victoria, NSW, Queensland and South Australia) and gas in Victoria and NSW. Further, Click’s business model is strongly aligned with Amaysim as it helps in significantly enhancing scale, operating leverage and cross-selling by adding an additional 136,000 households to AYS existing customer base of ~600,000. Over the next few years, Amaysim intends to reach ~300,000 homes with multiple products (NBN, mobile and energy) with a possible average household ARPU (average revenue per user) of $200/month. Acquisition is expected to generate annual pre-tax cost synergies of approximately $5 million by the end of FY18F. These cost synergies are primarily expected to be generated from efficiencies around customer service, IT systems and processes. The acquisition is expected to be 20%+ EPS accretive for Amaysim shareholders on an underlying NPATA basis in the FY2018.


Opportunity to leverage Click’s customer acquisition channels; (Source:  Company reports)
 
No impact of acquisition on dividends: The acquisition materially increases the size of Amaysim with the combined businesses generating a net revenue of $322 - 323 million and underlying EBITDA of $42-43 million for FY17F. Importantly, the acquisition is not expected to impact Amaysim’s aptitude to pay dividends in FY17F with the 2017 full year dividend to be partially franked and expected to represent a full year payout ratio of the 60-80% underlying NPAT. 


FY17F guidance; (Source:  Company reports)

Opportunity to disrupt the larger incumbent players: Importantly, the deal would also enhance scale, operating leverage and ability to cross-sell a diverse range of relevant products and services into more households. Additionally, 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. In the combined AYS Group, Click would contribute approximately 13% of total subscribers but account for approximately 43% of revenue. 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. 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. 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)
 
Launch of 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.


Post-nbn launch and Click energy integration; (Source: Company reports)

Robust H1FY17 financial performance: AYS has reported 17% yoy growth in statutory net revenue to $136.6 million, and 38% growth in the underlying EBITDA to $17.3 million. There was 34% growth in the closing mobile subscribers to 1.03 million as at Dec 2016 reinforcing #4 market position. The statutory gross profit grew 14% to $40.5 million and incurred the underlying operating costs of $23.2 million. Additionally, in H1FY17, there was strong underlying operating cash flow after capex of $18.3 million implying 106% cash conversion of underlying EBITDA, led by 29% yoy growth in NPATA to $10.3 million. However, the group’s gross margins fell slightly by 80bps to 29.6% impacted by decreasing ARPU and high base due to benefits of past price reviews. For FY17, the group expects underlying operating expenses inclusive of broadband investment to be flat on a year on year (yoy) basis given their focus on operating efficiencies and financial and operational management. Moreover, the robust growth in mobile and further operating efficiencies are expected to drive profitable growth during FY18.


H1FY17 Financial Performance (Source: Company Reports)

FY16 revenue driven by strong subscriber base:  During FY16, the company reported 19.3% yoy growth in net revenue at $253.5 million, primarily driven by growth in subscriber base. Further, Gross profit growth was stronger than net revenue growth reflected the Group’s robust NSA (Network Services Agreement) and improved rate of online payments and activations. Gross profit margin increased from 28.0% to 33.7% during the financial year due to the disciplined and active management of a number of operational levers to achieve profitable growth. However, the NPAT declined by 48.7% to $12.3 million, impacted by additional tax expenses for listing on the ASX and acquisition of Vaya, whereas FY15 statutory NPAT included a one-off tax benefit due to the recognition for the first time of tax benefits associated with prior period tax losses.  Despite, decline in NPAT, strong free cashflows enabled the acquisition of Vaya, and payment of healthy dividends and allowed the company to accelerate broadband strategy through the acquisition of AusBBS.


FY16 Financial performance; (Source: Company Reports)
 
Stock Performance:AYS stock has fallen over 24.6% in the last six months, while it is down 14.5% in the last one year (as on July 04, 2017) as the group’s ARPU was under pressure last year. However, the group expects gross profit and operating margins for the second half of 2017 to improve given their potential benefits from price reviews under the wholesale agreement with Optus and other product initiatives to grow revenue. The group’s launch of Amaysim broadband is a part of the company’s diversification efforts and aims to enhance their share of household wallet during the second half of the year. Going forward, the recent initiatives including the price review mechanisms under the NSA, activities to improve churn and online engagement, subscriber growth, cost control efforts, product offerings and strategic acquisition moves are expected to drive revenue and earnings. We give a “Buy” recommendation on the stock at the current market price of $1.52


AYS Daily Chart (Source: Thomson Reuters)

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