2 Stocks in Communication Services Space - AYS, CNU

amaysim Australia Limited

Decent Market Share Despite Sectorial Challenges: amaysim Australia Limited (ASX: AYS) operates in the delivery of simple and transparent mobile and retail energy plans. The company is the largest Mobile Virtual Network Operator (MVNO) and one of the leading energy retailers in Australia. 

On 30 September 2019, the company replied to ASX query regarding a significant decrease in the price of AYS’s stock on 27 September to $0.345. The company clarified that it is not aware of any information which has not been announced to the market and impacted the stock price movement. AYS also highlighted the lower FY20 guidance in terms of underlying EBITDA on the face of “mobile market continuing to remain highly competitive” and to “uncertainty in respect of the impact of recent changes in energy regulations”. AYS also informed that one of its major shareholders named, Fidelity has disclosed its ongoing selling in the stock of AYS, reducing its holding to 8.58% as at 24 September 2019.

FY19 Performance Highlights for year ended 30 June 2019:AYS declared its FY19 results wherein the company posted a revenue on statutory basis at $508.3 million, a decline of 7.8% on y-o-y. The company reported a loss of $6.5 million as compared to a profit of $14.8 million in FY18. Gross profit margin stood at 29.9% during FY19. Mobile subscribers, during the year, stood at 624 million as compared to 655 million in FY18. While energy subscribers were reported at 207 million, 8.3% higher than FY18. Average revenue per user (ARPU) per month stood at $25.3 for mobile segment and $128.5 for energy segment. The mobile market has remained highly competitive while AYS continued to hold 34% of MVNO market during the year. The company signed a network supply agreement (NSA) with Optus during May and launched new mobile plans within one week.


FY19 Operating Highlights (Source: Company Reports)
 
Outlook:The company will continue to reinvest in the business to support growth through its strategic initiatives. As per the guidance, FY20 is likely to see lower earnings compared to FY19 with FY20 underlying EBITDA expected at $33 million - $39 million on ‘New GAAP’ basis, lower from $47.3 million in FY19.

Stock Recommendations:The stock of AYS is trading at $0.300 along with a market capitalization of $103.29 million. The stock is trading close to the lower band of its 52-week trading range of $0.285 to $1.057. The stock has generated a negative return of 50.70% and 45.31% during the last three months and six months, respectively. The company is well-positioned to take advantage of growth opportunities with funding secured from the capital raise, providing the financial flexibility to drive growth. The stock is trading at enterprise value to EBITDA multiple of 3.1x on trailing twelve months (TTM) basis as compared to its industry median of 7x. We are of the view that most of the negatives are factors in at the current juncture. Hence, considering the aforesaid facts, recent price movements, valuation and business prospects, we recommend a ‘Hold’ rating on the stock at the current market price of $0.300, down 14.286% on account of lower FY20 guidance.
 

Chorus Limited

Regulated Asset Base and Fibre Revenue to Impact Dividends: Chorus Limited (ASX: CNU) is a company operating in the telecom sector and is engaged in building and managing an open-access internet network.

New Regulatory Framework:The company recently updated that the new regulatory framework for fibre access services will be implemented from January 2022, with the key focus being smooth transition for consumers and investors.


New Regulatory Framework (Source: Company Reports)

Dividend: The company will be paying an unfranked ordinary dividend of NZD 0.15882353 per share, on 08 October 2019.

Highlights of FY19 Results: During the year ended 30 June 2019, the company reported an operating revenue amounting to NZ$970 million, as compared to prior corresponding period revenue of NZ$990 million. EBITDA for the period was reported at NZ$636 million, as compared to NZ$653 million reported in FY18.EBITDA for FY19 was in-line with the guidance range of NZ$625 million - NZ$645 million. Net profit after tax stood at NZ$53 million, reflecting an impact of reduced revenue and increased interest costs of borrowings.

FY20 Guidance: EBITDA for FY20 is expected to be in the range of NZ$625 million - NZ$645 million. Gross capital expenditure during the year is expected to be between NZ$660 million - NZ$700 million. Subject to no material changes in the outlook, the company expects to pay a dividend amounting to 24 cents per share in FY20.

Stock Recommendation: The stock of the company generated negative returns of 11.52% and 14.39% over a period of 3 months and 6 months, respectively. In FY19, fibre delivered peak performance with 186,000 fibre installations during the year. The period was also marked by strong performance with respect to broadband connections, representing a significant jump from 1,000 lines in FY18 to 9,000 lines in FY19. The Board of the company expects to revise the dividend policy upon finalisation of the value of the regulated asset base of the company and regulated revenue for fibre by the Commerce Commission, which is due in June 2021. Meanwhile, the Board expects to deliver modest dividend growth to shareholders, subject to no material adverse changes in circumstances. Given the backdrop of the above factors, we suggest investors to keep a close eye on the stock. Hence, we have a watch stance on the stock at the current market price of $4.630, down 2.731% on 30 September 2019.

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