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Amaysim share price down following FY20 results and divestment announcement

hand holding mobile phone against back drop of line chart representing falling amaysim share price
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The Amaysim Australia Ltd (ASX: AYS) share price is down 2.1% today following the release of the company’s full year FY20 results this morning. This comes after the Amaysim share price initially soared more than 11% in morning trade.

Amaysim is a subscription mobile service provider with no lock-in contracts, currently working via Optus as its wholesale provider. The company also provided subscription energy plans, but this morning announced the sale of its energy business.

This may have had something to do with the delay in releasing its full year 2020 financial results.

On 19 August, Amaysim announced it was delaying its FY20 results report until today. The Amaysim share price surged to close up 24% following that announcement. Investors likely took note of the positive language contained in the note, including that, “Management expects to deliver a good set of results which will be in line with prior guidance.”

I had the opportunity to chat with Amaysim’s Chief Strategy Officer, Alex Feldman, earlier today. We’ll get to a few excerpts from that chat below.

But first let’s look at those results and Amaysim’s announcement on the sale of its energy business.

What’s moving the Amaysim share price?

The Amaysim share price has been on a rollercoaster ride today after the company announced it has entered into a binding share sale agreement for its energy business to AGL Energy Limited (ASX: AGL) for an all-cash consideration of $115 million. AGL will buy all of Amaysim’s issued share capital in Click Energy Group Pty Ltd.

Luminis Partners assisted the company in providing options to unlock shareholder value.

Amaysim noted that the sale streamlines its focus and operations to a pure-play mobile business while providing significant capital for investment and growth of its core mobile business.

Commenting on the sale, Chief Executive Officer and Founder, Peter O’Connell, said:

Our investment in Amaysim Energy has delivered solid returns since acquisition in 2017, however, we believe that going forward the business will be best suited in the hands of AGL…

Looking ahead, we believe transitioning to a pure-play mobile business will deliver long-term shareholder value. We will now be solely focused on delivering on the growth of mobile as we progress the tender for our wholesale mobile network provider.

Amaysim will use some of the proceeds of the sale to repay $53 million of debt. Its cash position is expected to increase by at least $50 million.

The company also announced it has launched a competitive tender for wholesale mobile network services. Its current agreement with Optus expires on 30 June 2022.

What did Amaysim’s full year 2020 results reveal?

Amaysim reported underlying earnings before interest, taxes, depreciation and amortisation (EBITDA) of $40.1 million. This exceeded its FY20 guidance of $33 million to $39 million. EBITDA was 15.2% lower than the previous financial year, largely due to $9.1 million of marketing investment in line with the company’s growth strategy

Mobile gross profit increased 11.9% to $77.8 million while its energy gross profit fell 11.3% to $73.3 million.

In addition, net revenue of $490.5 million was down 3.5% on FY19, due to lower average revenue per user (ARPU) across its mobile and energy businesses.

Net profit after tax (NPAT) came in at $0.6 million. That compares to an NPAT loss of $6.5 million the previous year, which was impacted by a non-cash impairment in energy.

The Amaysim share price is flat despite the company reporting strong subscriber growth figures for its mobile business. As at 30 June, total mobile subscribers were 1.18 million. Of those, 830,000 are recurring subscribers. Amaysim achieved organic growth of 91,000 mobile subscribers, while acquisitions of Jeenee Mobile and OVO Mobile subscribers added 115,000 recurring mobile subscribers.

Mr Peter O’Connell, Chief Executive Officer and Founder said:

FY20 was a year of solid execution against our strategic pillars. We achieved exceptional growth of the mobile business, improved our brand awareness and energy delivered a strong result amid another year of unprecedented regulatory change…

Given the challenges faced by our people and the economy in the second half of the financial year, I am delighted to report that we exceeded our underlying EBITDA guidance range and that we were not reliant on any government COVID assistance schemes to deliver this result.

Mobile subscriber growth has continued in July and August, with the recurring subscriber base totalling 836,000 as at 27 August 2020.

Amaysim, like the majority of companies during this reporting season, did not provide forward guidance citing “the unprecedented level of economic uncertainty” over the coming months.

My chat with Amaysim’s Chief Strategy Officer, Alex Feldman

This morning I had the chance to speak with Amaysim’s Chief Strategy Officer, Alex Feldman.

I asked him what plans Amaysim has for the proceeds from the sale of its energy business. He explained it will enable the company to focus on its core business and put itself in an optimal position to renegotiate with Optus.

As Alex said:

Our mobile business has well and truly turned the corner. Revenue is growing and our annualised recurring revenue by month has been growing for a number of months now.

We’ll continue to focus on our recurring customers to be as big and beautiful as we can be to our next wholesale partner. Obviously, Optus is in the box seat as the incumbent, that would be fantastic. But if not Optus I think we’ll bring incredible value to the next wholesale partner, whoever that may be.

Alex continued:

The sale of energy allows us to have an incredible balance sheet to focus on growth, whether that’s organic growth or inorganic growth. We’ll also look at distribution of capital to shareholders. It’s a little early to make that call yet. (The transaction is set to complete at the end of September).  After we hand the energy business over to AGL in fantastic form, I think the capital deployment will almost make itself obvious as things play out.

Like most businesses in Australia, and indeed across the globe, COVID-19 is seen as a potential short-term threat, though Amaysim’s business model helps keep that in check.

Alex said there have been disruptions to the company’s retail supply chains, where it often makes its first sales. But he adds:

Our business has been very mobile and online focused. After that first sale occurs (in a retail outlet) the majority of our customers interact with us online.

The big issue is the uncertainty of what COVID brings to the retail channels. We’ve never been through one of these events before, we don’t know what it’s like. We don’t know how things will play out.

The company is addressing the uncertainties by “maintaining our agility and ensuring our funds go a long way to bring customers through the door. We bring in customers incredibly efficiently and consistently. And we serve them well.”

Alex pointed out that it is Amaysim’s customer service, acquisition and business model that really sets it apart from the competition:

No one in the market brings in customers as efficiently as us. And we’ve been the lowest complained about telco for more than 5 years now. Even during COVID disruption we maintained a score of less than 1 per 10,000 customer complaints. That’s a badge of honour for us.

Many telcos depend on customers exceeding their planned usage. We only want our customers to pay what they’re expecting to be billed every month. We don’t want them going over their allowance. We want them to have that consistent experience with us.

We made a very conscious decision to ween ourselves off that type of revenue.

As for the coming rollout of 5G, Alex said:

It will be a net positive over time. I think in the short term there will be virtually no impact for us. There are very few devices in the market which are 5G enabled, even if the networks were built, which they’re not.

When those handsets do come in and start to dominate, 5G will become very important. Our customer base typically isn’t one of the fast followers, who are happy to spend $2,000 on a new device. Our customer base tend not to do that.

The result is that in the short term we are completely relaxed about 5G. In the medium to long term we absolutely want to be part of that. And I think 5G will bring new services and opportunities. It will also bring lots of new connected devices onto the networks.

With the company’s shares up 70% year to date, the Amaysim share price is one to keep your eye on.

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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