One technology company that has benefitted from the COVID-19 trend of working from home and the rollout of the NBN is about to go public.
Aussie Broadband Limited (ASX: ABB) shares are scheduled to start trading on the ASX from 27 October.
The internet service provider (ISP) will float with a market capitalisation between $180.5 million and $190.5 million.
Aussie Broadband managing director Phillip Britt told The Motley Fool that the timing was right to raise funds publicly.
"We've got some fairly lofty ambitions. The capital markets was the obvious way to raise cash to do what we want to do."
Britt co-founded Wideband Networks in 2003 then became the boss of Aussie after a 2008 merger with Westvic Broadband.
There are still 7 founding shareholders and some of them may seek to exit upon listing.
"They are all at different stages of their lives. I'm certainly here for the long run but different people want to get out at different times. [The float] provides optionality on that."
What's Aussie Broadband's moat?
Aussie Broadband has developed a loyal following during the rollout of the NBN the last few years.
The ISP targets the premium residential and small business market, with monthly plans that are not the cheapest but promising plentiful bandwidth.
Aussie Broadband also loves pointing out in its marketing spiel that its call centre staff are based entirely in Australia.
"Our primary (moat) is customer service. It's the thing we win all the awards for," said Britt.
"The other part is that what's on the box – what the product says, what speed it says it will do in the evenings – is exactly what it does."
The company saw $190.5 million of revenue for the 2020 financial year losing $5.1 million after tax. It forecasts $338.1 million revenue and a $529,000 profit for the current financial year.
What will Aussie Broadband do with the money raised?
The initial public offer (IPO) sees $30 million to $40 million raised through the issue of $1 shares.
The big push for raising the funds is the company's vision to build a dark fibre network.
Aussie Broadband, like most ISPs, leases from Telstra Corporation Ltd (ASX: TLS) the pipes that go between all 121 NBN points-of-interconnect (POI) to its own network.
But its own dark fibre would allow it to bypass that arrangement in a majority of cases.
"We're going to build our own fibre to 76 of those POIs, which are the metropolitan and outer-metro ones," Britt said.
"It does two things. Obviously it reduces the amount of money we pay to Telstra in the long term, but it also means we can connect businesses directly to our own fibre. So we're not paying the NBN or someone else for those services."
While capital outlay for such a project is immense, Britt expects the dark fibre to "make a significant difference" to earnings by the 2023 financial year.
Customers went crazy for shares
The company decided to reward its loyal customer base by offering shares for purchase during the IPO.
The response was overwhelming. The IPO share offer was opened 9am last Tuesday, but by 8am the pre-queue saw 9,000 customers already lined up.
"Overall a bit over 14,000 in the queue. Only 5,000 can get it because that part was $10 million (with $2,000 of shares allocated per customer)," Britt told The Motley Fool.
"Our institutional offer was also heavily oversubscribed."
Britt said advisors tried to talk him out of the customer offer due to the complexity in implementing such a scheme. But he feels justified after the allocation sold out in just over an hour.
"It was a testament to our customers and the product they want to invest in."
