Aussie Broadband (ASX:ABB) shares are up almost 50% since their IPO

There are several key drivers behind the massive rise.

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Shares in Aussie Broadband Ltd (ASX:ABB) have performed strongly since the company first listed on the ASX last October. In that time, shares in the telco have risen almost 50% to $2.83 (as at the time of writing), and even briefly touched a high of $3.30 in mid-April.

Let’s take a closer look at some of the drivers behind these big gains, and also see what the future might hold for this up-and-coming ASX telecommunications company.

Company Background

Aussie Broadband sells nbnTM plans to individuals and businesses. The nbnTM is Australia’s wholesale broadband network, maintained and operated by NBN Co, a Government Business Enterprise wholly owned by the Australian Federal Government.

Aussie Broadband has been in operation for over 16 years but it is still dedicated to its local roots. Rather than offshoring its call centre operations, Aussie Broadband has set up its call centres in regional and metropolitan Victoria. It also actively supports local community initiatives through sponsorships and other volunteer programs.

All in all, Aussie Broadband seeks to position itself as a grass-roots local alternative to the bigger established telcos like Telstra Corporation Ltd (ASX:TLS) and Optus (owned by Singapore Telecommunications Limited).  

Recent Financials

Aussie Broadband delivered impressive growth over the first half of FY21 – exceeding even its own prospectus forecasts. Revenue for the half came in at $157.4 million, an uplift of 89% over the prior corresponding period, and 4% ahead of the prospectus target. Earnings before interest, tax, depreciation and amortisation expenses (EBITDA) also came in ahead of forecast, at $7.3 million.

It was a strong half for the company, in which it increased its share of the NBN fixed-line and fixed-wireless technologies market to 4.2% (from just 2.8% a year earlier). In total, Aussie Broadband provided over 340,000 broadband connections, a half-on-half increase of 31%.

Outlook

The company is continuing to track ahead of its prospectus forecast for FY21. Aussie Broadband initially stated that it was targeting normalised EBITDA of $12.3 million for FY21 in its prospectus. Normalised EBITDA excludes the costs associated with the company’s initial public offering (IPO).

Two guidance upgrades later – one included in the half year report, and another in late May – Aussie Broadband now expects normalised EBITDA for the full year to be between $17 million and $20 million. That could be as much as 63% ahead of the prospectus.

The company credits the upgrades to high rates of growth in its retail and business segments, good cost management, and promotional rebates. The one risk to that forecast could be that it only assumes Victoria’s May snap lockdown would last for one week, whereas it was subsequently extended for a second. Aussie Broadband notes that its costs tend to be higher during these periods as broadband usage surges. To what extent that may weigh on the company’s full year EBITDA remains to be seen.

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Motley Fool contributor Rhys Brock has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Aussie Broadband Limited. The Motley Fool Australia owns shares of and has recommended Telstra Corporation Limited. The Motley Fool Australia has recommended Aussie Broadband Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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