Aim-traded BigBlu Broadband (BBB:102p), a fast-growing satellite internet service provider offering an alternative high-speed broadband service, has been named as a preferred partner by Eurobroadband Infrastructure (EBI), a subsidiary of New York Stock Exchange-listed Eutelsat (US:ETL), a global satellite operator that is launching a superfast satellite broadband service to consumers and businesses across Europe with download speeds of up to 50 Mbps.
Under the arrangement, EBI will provide satellite network capacity, as well as assisting with subscriber premises equipment, installation and marketing to support its ‘Konnect’ brand. BigBlu will promote and sell satellite broadband services while managing all activities related to subscriber management, including installation, billing and support. Based on a shared growth model, BigBlu will be an integral part of the distribution network over Eutelsat’s KA-SAT satellite. There are potentially 27m European internet users who have internet speeds below 4Mbs, so the target market is huge.
Andrew Walwyn, chief executive of BigBlu, believes the investment EBI is making is a game-changer for BigBlu and its customers by delivering a service superior to most people’s wired broadband at a similar price point for the user. This means that Eutelsat is now BigBlu’s key partner in Europe after an acrimonious divorce between ViaSat and Eutelsat in their European satellite retail joint venture, which has launched services into Poland, Norway, Spain, Sweden and Finland. The terms BigBlu has agreed with Eutelsat are comparable with its arrangement with ViaSat in the aforementioned five countries.
There could even be a kicker for BigBlu now that Eutelsat has decided to compete with ViaSat by launching its own satellite. That’s because ViaSat may decide to buy in capacity from elsewhere ahead of launch of its Viasat-3 satellite over Europe, the Middle East and Africa (EMEA) in 2021 in order to give it a running start. That can only be good news for BigBlu, which provides an obvious route to market, adding further weight to the company’s target of having 150,000 customers by November 2020. It’s making good progress.
In a pre-close trading update earlier this month, BigBlu revealed that it had increased its customer base from 100,000 to 113,000 in the 12 months to end November 2018, which helped deliver a 7 per cent rise in organic revenues. Annual recurring revenues shot up by more than a quarter to £51m to account for 94 per cent of total revenue of £55m to produce underlying cash profits of £6.8m, up from £4.7m the year before, and on an improved margin. Expect another strong performance in the new financial year as the operational gearing of the business really kicks in. Numis Securities pencils in annual revenues of £62m to deliver cash profit of £10.1m and earnings per share (EPS) of 7.3p, rising to revenue of £67m, cash profit of £11.1m and EPS of 11.7p the year after. On this basis, the shares are priced on a 2019 price/earnings (PE) ratio of 13, falling to a PE ratio of below nine in 2020.
I would flag up that BigBlu has the backing of some very shrewd investors. Non-executive director Christopher Mills and parties related to him (North Atlantic Smaller Companies Trust, Harwood Capital and Oryx International Growth Fund) backed a placing at 127.5p a share earlier this year and control 22.6 per cent of BigBlu’s issued share capital. Interestingly, Harwood holds a 28.2 per cent stake in Bioquell (BQE:590p), the provider of specialist microbiological control technologies to the healthcare and life science markets that recently received a £140m recommended cash offer to crystallise a 372 per cent gain for holders of my 2016 Bargain Shares portfolio. Mr Mills is a non-executive director of Bioquell too. Their lead is worth following.
So, having first advised buying BigBlu’s shares at 82.5p ('Blue-sky tech play', 21 March 2016), and last updated at the time of the interim results ('BigBlu targeting ultra-fast organic growth', 5 September 2018), I maintain my positive stance and conservative-looking 165p target price. Buy.
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