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Targeting sky high returns

A provider of alternative superfast satellite, fixed wireless and 4G/5G broadband products, is returning cash to shareholders and is delivering eye-catching growth from operations Down Under
Targeting sky high returns
  • Cash return of £25.9m in October from £33m net cash pile
  • 52.7 per cent-owned Quickline subsidiary sold for maximum consideration of £48.6m, or 5.8 times cost of investment
  • Deferred consideration of £10.1m cash and £1.8m loan notes subject to Quickline’s performance in 12 months to 31 March 2022
  • 8 per cent equity stake worth £5.6m retained in Quickline
  • Australian SkyMesh business delivers 50 per cent cash profit growth in first half

Aim-traded BigBlu Broadband (BBB:116p), a provider of alternative superfast satellite, fixed wireless and 4G/5G broadband products, is returning 45p a share to shareholders following the disposal of the group’s 52.7 per cent stake in Quickline to private equity group Northleaf Capital Partners.

Funded by government grants, Quickline is building its own fixed wireless access (FWA) networks, supported by increasing amounts of fibre infrastructure, to address the ‘digital divide’ in the UK. It’s a fast-growing business which is why BigBlu achieved an exit price of 23 times forecast cash profits. Sensibly, BigBlu has retained an 8 per cent equity stake worth £5.8m to benefit from further capital upside.

The focus now is on the group’s two international businesses: SkyMesh, an Australian satellite broadband provider that targets customers in rural areas outside of the fibre footprint; and a Nordic satellite and FWA broadband business that has been restructured and is now planning expansion into Sweden and Finland.

In the first half, SkyMesh’s cash profits surged by 50 per cent to £1.8m on 42 per cent higher revenue of £10.5m, buoyed by 5,700 new customer additions (to 48,700). They are more profitable, too, as 70 per cent of new take-ups are opting for A$100-per-month unlimited data tarrifs, says chief executive Andrew Walwyn. Skymesh had a 36 per cent share of the market and the aim is to increase the user base to 80,000 over the next three years through organic growth – it has delivered double-digit growth for the past three years – and regional expansion. For instance, SkyMesh will launch a service next month in New Zealand with Asia Pacific broadband satellite operator Kacific. Bolt-on acquisitions are also being considered. SkyMesh delivered free cash flow of £1.4m in the six-month period and house broker finnCap expects both free cash flow and cash profit to exceed £3m in the full year.

Churn was high in the Nordic business after BigBlu took the decision to dismount lossmaking masts, which cut the user base by 3,300 customers. However, finance director Frank Waters says that the customer base has stabilised around 9,500 and with a network upgrade programme due to complete shortly and new satellite offerings to be launched in November, then the streamlined infrastructure-light business is poised to return to growth. In addition, next year’s copper switch-off across Norway will add 200,000 addressable households to BigBlu’s 5G FWA target market.

The investment opportunity here is being seriously undervalued. Deduct the £33m cash pile, £5.6m equity stake in Quickline and £11.9m deferred consideration from BigBlu’s £66.8m market capitalisation and the Nordic and Australian businesses are being valued at £16.3m (28p a share), or 5.5 times finnCap’s full-year operating profit estimate. SkyMesh has to be worth £36m (62p), and considerably more to a bidder, given its robust growth prospects. My target price is 175p. Buy.

 

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