ASX 300 stock down 24% since March now offers 'compelling value'

A fund manager has picked out this stock as a good opportunity.

| More on:
A man sits in contemplation on his sofa looking at his phone as though he has just heard some serious or interesting news.

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

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.  

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.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Aussie Broadband. The Motley Fool Australia has recommended Aussie Broadband. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Communication Shares

A man casually dressed looks to the side in a pensive, thoughtful manner with one hand under his chin, holding a mobile phone in his hand while thinking about something.
Communication Shares

How much could $10,000 invested in Telstra shares be worth next year?

What do analysts think this telco giant's shares could be really worth?

Read more »

A man looking at his laptop and thinking.
Communication Shares

Why is the Aussie Broadband share price slipping on Wednesday?

After opening higher, the Aussie Broadband share price has slipped into the red.

Read more »

Two elderly men laugh together as they take a selfie with a mobile phone with a city scape in the background.
Communication Shares

Why Telstra shares could be dirt cheap in May

Goldman Sachs thinks the telco giant is undervalued at current levels.

Read more »

Ordinary Australians waiting at the bus stop using their phones to trade ASX 200 shares today
Communication Shares

What does the latest 3G news mean for Telstra shares?

Telstra shares aren't budging from their new 52-week lows this week...

Read more »

A man in shirt and tie uses his mobile phone under water.
Communication Shares

The Telstra share price sank 5% in April and is now at 2-year lows. Time to buy?

With the Telstra share price at two-year lows, is now the time to buy the ASX 200 telco?

Read more »

A smiling young surf life saver at the beach shouts out on a megaphone.
Communication Shares

Telstra shares could reach $4.25 in 2025!

These experts aren't messing around on Telstra shares right now.

Read more »

Two laughing male executives wearing dark suits chat across a timber lunch room table while one of them holds up his phone to show information.
Communication Shares

TPG shares rise after Optus answers partnership call

TPG is calling on Optus to solve its regional network requirements.

Read more »

Health professional looking at a laptop.
Communication Shares

Own Telstra shares? A division may soon be offloaded!

Australia’s biggest telco is considering making itself a bit smaller.

Read more »