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. …

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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.

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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.

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