- Flat first-half revenue of £14.9mn
- Like-for-like revenue growth of 3.1 per cent
- Adjusted cash profit up slightly to £2.1mn
- Analysts upgrade full-year earnings and net cash estimates
The 14 per cent fall in the share price of Aim-traded BigBlu Broadband (BBB:41.5p) gives the impression that the provider of alternative broadband services warned on profits in its pre-close trading update. In fact, analysts upgraded their earnings estimates.
The confusion seems to be over news that the group’s wholly owned subsidiary, Brisbane-based SkyMesh, is seeing increased competition from rival Starlink. To counter the threat, 5,000 SkyMesh subscribers have been transferred to new product offerings in trials. It’s doing the trick, substantially reducing churn rates. Furthermore, heading into the second half, new products offering faster speeds and capacity should boost organic growth in customer numbers and the group is on the lookout for more acquisitions, too. In February 2023, BigBlu completed the earnings-enhancing acquisition of the satellite operation of Harbour ISP.
Management has also sliced £0.9mn off the cost base by rationalising UK head office overheads and slimming the workforce in Norway, a business that reassuringly is now showing signs of stabilisation after a reorganisation.
Earnings on the upgrade
Factoring in the savings and efficiency initiatives, house broker FinnCap upgraded its cash profit estimates by 3 per cent to £5.8mn (2023) and £6.1mn (2024) and raised net cash estimates by mid single digits to £2.7mn (4.6p) and £5.3mn (9p). On this basis, expect current-year earnings per share (EPS) of 5.9p, implying the shares are rated on a price/earnings (PE) ratio of 6.9. Analysts also expect further strategic updates in the forthcoming interim results (foillowing this month's trading update) in late summer, including news on the potential listing of SkyMesh on the Australian Stock Exchange, noting that the highly profitable Australian business should generate free cash flow of around £3mn this year.
However, with BigBlu’s current enterprise valuation of £24.6mn on course to fall to £21.6mn by the November 2023 financial year-end, the group is effectively being priced on a miserly 3.7 times projected annual cash profits. And that ignores the fact that BigBlu holds a 5.1 per cent stake in Quickline, a company that is building fixed wireless access networks to address the ‘digital divide’ in the UK. The stake in Quickline has a balance sheet valuation of £7.3mn (12.5p a share), or 30 per cent of BigBlu’s current market capitalisation.
Expect the share price fall to reverse quickly when the penny drops with investors. A likely IPO of SkyMesh could well bring FinnCap’s 90p target into play. Buy.
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