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Why Amaysim Australia Ltd (ASX:AYS) shares are zooming higher today

The Amaysim Australia Ltd (ASX: AYS) share price in on course to have a strong finish to the week.

In early afternoon trade the telco company’s shares have zoomed over 12% higher to $1.15.

Why are Amaysim’s shares zooming higher?

This morning the company announced the sale of its fixed line broadband customer base ahead of its annual general meeting.

According to the release, Amaysim has entered into an asset sale deed with Southern Phone Company Ltd to sell its fixed line broadband customer base for a purchase price of approximately $3 million.

The fee is payable in two tranches and subject to a number of conditions that are typically applied in respect of transactions of this nature. Management expects the transaction to complete by the end of October 2018.

The company expects to recognise a non-cash impairment of approximately $7 million pre-tax and write down the carrying value of the broadband assets to zero.

Why is it selling its broadband business?

Management made the move following a review of the business and believes the decision is in line with its goal of maximising shareholder returns.

The company’s new CEO, Peter O’Connell, told shareholders that: “The broadband team has worked very hard and done an outstanding job creating industry leading products and processes. The decision to exit broadband was not easy and was made in light of unsustainably high wholesale costs, intense competition and the need to allocate the company’s capital appropriately.”

In addition to this, he believes that by offloading the business, Amaysim will be able to “simplify its operating structure, defend and grow its core mobile and energy businesses, and invest in its technology platforms.”

He has not ruled out looking at other potential products and services that could be offered to the company’s mobile subscriber base, but this will only be done if it is “profitable, delivers a great customer experience and aligns with our asset-light business model.”

What now?

I think this was a sensible decision by management. Although it seemed like a good idea at the time, it quickly became apparent that the broadband offering was going to struggle.

In FY 2018 the segment dragged on the company’s results with a $6.3 million operating loss. This followed a $2.6 million operating loss for the segment a year earlier.

So with that segment now gone, the company can focus on growing its profitable mobile and energy businesses.

Should you invest?

In FY 2018 I was very surprised at the underwhelming performance of its mobile business and its significant drop in profits.

So, while this is certainly a step in the right direction for Amaysim, I’m going to wait and see how it performs in FY 2019 before considering an investment.

The same applies for industry rivals Telstra Corporation Ltd (ASX: TLS) and TPG Telecom Ltd (ASX: TPM).

In the meantime I would sooner invest in the shares of these growth stars.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia has recommended TPG Telecom Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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