Shares in Aussie Broadband Ltd (ASX: ABB) are down heavily — the S&P/ASX 300 Index (ASX: XKO) stock has dropped 24% since 5 March and is trading 9% lower year to date.
Investors may wonder whether this hefty recent decline is a buying opportunity or if the telco's shares are now at a fair price. One fund manager is bullish and certain of the answer. Let's look at why.
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What's happened?
Fund manager Blackwattle explained some recent headwinds impacting the ASX 300 stock.
It all started when Superloop Ltd (ASX: SLC) rejected a takeover offer from Aussie Broadband.
In another painful negative, Aussie Broadband lost the Origin Energy Ltd (ASX: ORG) wholesale broadband contract to Superloop. That contract amounts to around $14 million of earnings before interest, tax, depreciation and amortisation (EBITDA), or 13%, of FY24 guidance.
Superloop then served a legal notice on Aussie Broadband directing the beaten-up stock to reduce its 19.9% holding in Superloop to below 12% within 10 business days to comply with Singapore's telecommunications ownership regulations, which is where Superloop has a subsidiary.
Aussie Broadband has since complied with that notice and sold down the position to 11.9%.
The fund manager said it remained to be seen what Aussie Broadband would do with the rest of its holding and whether it still hoped to acquire Superloop.
Is the ASX 300 stock good value?
There may have been pain for Aussie Broadband either way with Origin, considering their lengthy and ultimately unacceptable (to Aussie) discussions about Origin migrating from its current white-label offering to a layer 3 wholesale model.
This would have seen Aussie Broadband providing network services, with Origin assuming responsibility for the technical and accounts call centre, billing, customer portal and collections functions currently provided by Aussie Broadband.
Origin's last layer 3 wholesale proposal would reduce its EBITDA contribution "considerably" due to "materially reduced wholesale margins and Origin taking the non-network functions". Aussie Broadband rejected that proposal because it was "not considered to be value accretive to shareholders".
Amid all of this, Aussie Broadband reaffirmed its recently upgraded FY24 guidance of between $105 million and $110 million.
The Blackwattle Small Cap Long-Short Quality Fund holds Aussie Broadband in its portfolio and said the ASX 300 stock screened as "compelling value" on a multiple of 7x EBITDA. So, the investment team is still bullish on the business.
