Why is the Aussie Broadband (ASX:ABB) share price soaring today?

The Aussie Broadband Ltd (ASX: ABB) share price jumped after it became the latest “buy” rated idea on JPMorgan’s list. …

| More on:
Aussie Broadband share price ASX share price rise represented by woman looking excitedly at computer screen

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Aussie Broadband Ltd (ASX: ABB) share price jumped after it became the latest “buy” rated idea on JPMorgan’s list.

The broker initiated coverage of the broadband services company and highlighted three reasons why it’s bullish on the shares.

The Aussie Broadband share price could soon rechallenge its record highs. The shares surged 7% surge to $5.42 in morning trade. It’s within striking distance of its $5.45 peak hit two weeks ago.

Aussie Broadband share price rises on premium product

JPMorgan reckons it’s worth more as premium product offering offers a strong competitive advantage.

“ABB’s key competitive advantage is in customer service, offering better guarantee of speeds, lower congestion and better responsiveness than the incumbents,” said JPMorgan.

“Higher market churn rates driven by the NBN rollout and more recently increased working-from-home due to COVID-19 lockdowns have contributed to ABB’s strong growth.”

Strong operating leverage

It’s this premium offering that has allowed the company to capture a 5% market share to become the fifth largest NBN retailer to households.

The better service limits the size of the markets Aussie Broadband can service. But the broker reckons it can double its market share by FY27.

The growing subscriber base gives JPMorgan more reasons to recommend the Aussie Broadband share price as “overweight”.

Other reasons to like the Aussie Broadband share price

“We expect strong growth in subscribers to result in 27% per annum revenue growth over the next 5 years with operating leverage to drive higher EBITDA margins,” added JPMorgan.

“The recent white label product offering with Origin could also see incremental subscriber growth and potentially lift ABB’s corporate appeal.”

You can’t underestimate corporate appeal in this market. Merger and acquisitions are all the rage with the Vocus share price and Uniti Group Ltd (ASX: UWL) share price featuring prominently on this front.

Telstra Corporation Ltd (ASX: TLS) is also getting a lot interest for its asset sales as global investors clamour for annuity-style investments.

What is the Aussie Broadband share price worth?

Aussie Broadband is jumping on the M&A bandwagon too. It has made an approach for Over The Wire Holdings Ltd (ASX: OTW).

JPMorgan’s 12-month price target on the shares is $6.50. It noted that the valuation is particularly sensitive to market share gains due to operating leverage.

For instance, if Aussie Broadband captures a 15% market share by FY27, its valuation increases to $11 a share.

Motley Fool contributor Brendon Lau owns shares of Telstra Corporation Limited. 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 and Uniti Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Gainers

A woman standing on a path flanked by big green trees is surrounded by colourful balloons tumbling from the sky.
Share Gainers

Why did the Pure Hydrogen share price pop 21% today?

Why did Pure Hydrogen shares have such an amazing day today?

Read more »

A bearded man holds both arms up diagonally and points with his index fingers to the sky with a thrilled look on his face over these rising Tassal share price
Share Gainers

Why Coronado Global, Lake, Megaport, and REA shares are storming higher

These ASX shares are having a good day...

Read more »

A girl runs along with her kite flying high in the sky.
Share Gainers

3 ASX mining shares rocketing by more than 20% today

Up we go in another day of double-digit gains for the ASX metals and mining equity bucket.

Read more »

Two men laughing while bouncing on bouncy balls
Share Gainers

Why is the BrainChip share price bouncing 6% higher today?

What's causing the BrainChip share price to pop on Tuesday?

Read more »

A graphic showing a businessman running up a white upwards rising arrow symbolising the soaring Magellan share price today
Share Gainers

Why is the Lake Resources share price powering up 17% today?

What's going on with the Lake Resources share price on Tuesday?

Read more »

A Cronos Australia farmer and ASX cannabis shares investor stands in a field of cannabis plants and smiles at the camera
Share Gainers

Why is the Incannex share price spiking 8% on Tuesday?

The stock has caught a bid on Tuesday.

Read more »

A little Asian girl is so excited by the bubbles coming out of her bubble machine.
Share Gainers

Why has the Redbubble share price burst 17% higher on Monday?

What pushed the e-commerce company's shares higher today?

Read more »

A cloud with a blue arrow pointing upwards through its middle symbolising a rising asx share price
Share Gainers

Guess which ASX tech share just soared 40% on takeover news

This small-cap ASX tech share has shot up 40% today.

Read more »