The Aussie Broadband Ltd (ASX: ABB) share price has a lot of upside, according to one expert.
This business primarily provides broadband, voice over internet protocol (VOIP), and mobile services to residential customers. Its target is to be Australia's fourth-largest provider of communications and technology services.
Aussie Broadband has also acquired Over The Wire, which has a lot of capabilities across data, voice, cloud, and managed services. Over The Wire is focused on business, enterprise and government, and wholesale segments.
By combining these two businesses, it can be an integrated full-service provider across the "full suite" of solutions to residential, business, enterprise and government, and wholesale customers. It will also have full ownership of tier 1 voice and data networks in Australia, interconnection to all 121 NBN points of interconnection and a cloud infrastructure platform.
With all of the volatility that's going on, I think it's a good idea to look at how the company is actually performing, not just what the share price is doing.
FY23 first-quarter update
The ASX telco share announced that in the FY23 first quarter, it had reached 610,098 broadband services, up 4.3% from 30 June 2022.
In the quarter, it generated $184.4 million of revenue, which was an increase of 4.6% from the fourth quarter of FY22.
It said that Aussie Broadband's residential and business segment delivered consistent net additions despite strong price-based competition without the need for heavy promotion use, reducing its customer acquisition costs and long-term churn risk.
The mobile division grew "strongly" thanks to a new marketing strategy and change to plans. There were 4,953 net mobile additions during the quarter.
Wholesale and white-label additions were lower because of white-label customer internal platform change., Management is expecting white-label additions to improve in the second quarter of FY23.
In terms of its NBN market share, it had reached 6.73% at September 2022, up 27 basis points from 30 June 2022. Since December, Aussie Broadband has reportedly taken more net additions than the rest of the industry combined.
Guidance for FY23
Aussie Broadband noted that based on current market conditions, the operating plan, and year-to-date trading, it's expecting revenue of between $800 million and $840 million.
It's planning growth in higher margin business, enterprise and government customers, and the full-year benefit of Over The Wire. This should deliver an underlying earnings before interest, tax, depreciation and amortisation (EBITDA) margin, excluding integration costs, of between 10% and 10.5%, up from 7.2% in FY22.
Aussie Broadband share price target
One of the brokers that likes the ASX telco share is Ord Minnett, with a price target of $3.61. That implies a possible rise of more than 40% from Thursday's closing price of $2.52.
The broker likes the expected increasing profitability of the business and thinks Over The Wire can help it become bigger.
Based on the estimated earnings for FY24, Ord Minnett thinks the business is priced at 13x FY24's projected profit.
