Aussie Broadband Limited

ABB Details

Q4FY21 Financial Performance: Aussie Broadband Limited (ASX: ABB) engages in telecommunication services that offer national broadband network (NBN) subscription plans, bundles to residential homes, and multi-handset phone systems, voice connectivity, security to businesses in Australia.

• The company has recorded revenue growth of 8% to $100.1 million in Q4FY21, or an increase of $7.42 million quarter on quarter, driven by continuous growth in residential connections.
• ABB has reported an increase in business broadband connections by 12% to 35,354, an increase of 3,825 over the prior quarter, and reported an increase of 3,770 or 20% in mobile services to 22,454.
• Carbon, an automated online platform delivered growth with $561,000 in monthly revenue billed at 4Q FY21, a 46% increase over 3Q FY21.
• The company had increased its NBN services market share to 4.9% at the end of Q4FY21, compared to 4% from the prior quarter.

Financial Performance (Source: Analysis by Kalkine Group)

Key Risks:

• The company’s Aussie Fibre Project has missed its target completion due to ongoing construction challenges in the NSW area during lockdown that impacted its operations, and still, the uncertainty prevails.

Outlook:

• The company is significantly working on launching the first white-label customer in early FY22, expecting to be a key growth channel for the company. It has launched mobile services under its new agreement with Optus that might have a positive impact on its growth.
• ABB is expecting FY21 EBITDA to be at the upper end of the guidance of $17 million to $20 million), excluding IPO cost for the year.
• The company has advised to release the full-year result for 2021 on 30 August 2021.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of its NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: As per a recent update, the company has achieved a record broadband sales month in July FY21 through its strategic marketing campaign and new promotional offers. The stock of ABB is trading above its average 52-weeks' levels of $1.695-$3.440. The stock of ABB gave a positive return of ~76.10% in the past nine months and a positive return of ~21.94% in the past one month. On a technical analysis front, the stock of ABB has a support level of ~$3.020 and a resistance level of ~$3.500. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price with a correction of high single digit (in % terms). We believe that the company can trade at a slight discount to its peer median EV/Sales (NTM trading multiple), considering the uncertainty over COVID-19 impact and technology advancement risk. For this purpose, we have taken peers such as MNF Group Ltd (ASX: MNF), Spirit Technology Solutions Ltd (ASX: ST1), 5G Networks Ltd (ASX: 5GN). Considering the current trading levels and valuations, the recent rally in the stock price, impact of lockdown restrictions, and the key risks associated with the business, we suggest investors to book profit and give a 'Sell' rating on the stock at the current market price of $3.405, as on 10 August 2021, 11:43 PM (GMT+10), Sydney, Eastern Australia.

ABB Daily Technical Chart, Data Source: REFINITIV 

MNF Group Limited

MNF Details

Divestment of Business: MNF Group Limited (ASX: MNF) operates in communication enablement services to residential, business, government, and wholesale customers globally. As per a recent announcement, the company has sold a part of its Direct businesses to Vonex for ~$31 million. Further, funds from the sale will be reinvested into the growing wholesale business and strategic expansion.

Appointment of Chairman- The company has appointed Anne Ward to serve as an Independent Director and Chair of the Board.

H1FY21 Financial Performance:

• The company has reported recurring revenue rose by 15% to $55.7 million in H1FY21, compared to $48.3 million in H1FY20, driven by growing wholesale revenue.
• MNF has reported an increased EBITDA by 16% to $19.6 million in H1FY21 against $16.9 million on a pcp basis.
• The company recorded improvement underlying NPAT-A by ~30% to $8.4 million in H1FY21 against $6.5 million in H1FY20.

Revenue and Net Income Trend (Source: Analysis by Kalkine Group)

Key Risks: Due to high competition, the company is exposed to a decrease in Average Revenue Per User (ARPU). Therefore, the company should maintain a strong customer base by offering quality services.

Outlook:

• The company has reaffirmed the earning guidance of FY21 EBITDA that is estimated in the range of $40.0 to $43.0 million.
• The company has announced that it will release its full-year result for FY21 on 24 August 2021.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: As per a recent announcement, the company recorded earnings per share of 7.83 cents per share in H1FY21, up by 62% when compared with H1FY20. The stock of MNF is trading above its average 52-weeks' levels of $4.140-$6.200. The stock of MNF gave a positive return of ~23.37% in the past six months and a positive return of ~4.57% in the past one month. On a technical analysis front, the stock of MNF has a support level of ~$5.18 and a resistance level of ~$5.65. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price with a correction of high single digit (in % terms). We believe that the company can trade at some discount to its peer average EV/Sales (NTM trading multiple), considering the uncertainty over COVID-19 impact, technology advancement risk and part divestment of core business. For this purpose, we have taken peers such as 5G Networks Ltd (ASX: 5GN), Spirit Technology Solutions Ltd (ASX: ST1), Superloop Ltd (ASX: SLC), to name a few. Considering the current trading levels and valuations, the recent rally in the stock price, divestment of its direct business, and the key risks associated with the business, we suggest investors to book profit and give a 'Sell' rating on the stock at the current market price of $5.480, as on 10 August 2021, 3:17 PM (GMT+10), Sydney, Eastern Australia.

MNF Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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