The core operating segments include Consumer, serving Australian homes with fixed broadband, mobile, VOIP, and in-home cybersecurity; Business, catering to SMBs, medium, and large corporates with a focus on delivering exceptional B2B customer experiences and simplified offerings; and Wholesale, offering connectivity solutions to multinational tech and telecom customers as well as domestic ISPs. The Wholesale segment serves diverse needs, ranging from data and connectivity solutions to facilitating access to the NBN through the Superloop Connect platform.

In February Aussie Broadband (ASX: ABB) submitted a non-binding indicative proposal to acquire Superloop which was promptly dismissed by the company.

The offer to Superloop was all scrip with shareholders would receive 0.21 Aussie shares for each Superloop share, which at the time valued Superloop at $0.95 per share. Since then the Aussie Broadband price has declined from its highs and that same offer would only be worth $0.77 per share at the time of writing. This pales in comparison to the current Superloop share price of $1.28. With the current deal all but dead the drama continued this week.

Aussie Broadband’s share purchases in Superloop brought its voting power to 19.9% prior to its offer for the company is in breach of Superloop’s constitution.

Superloop’s constitution prohibits acquisitions of 12% or more without the requisite statutory approval from the Info-communications Media Development Authority (IMDA) in Singapore. Superloop has demanded that Aussie Broadband reduce its shareholding to a level that is less than 12% within 10 business days.

We see a number of potential outcomes for Aussie Broadband’s next move:

1. Aussie Broadband takes the gain it made on its investment and moves on. Particularly as they are a forced seller and are required to reduce their holding to a maximum of 12%.
2. An improved offer emerges from Aussie Broadband and the deal becomes a merger of the two companies requiring approval from IMDA.
3. Origin Energy Ltd (ASX: ORG) makes a takeover bid.

Why Origin?

It’s not often you see the target of a takeover outfox the acquirer.

On 13 March, it was announced to the market that Origin Energy (ASX: ORG) would terminate its agreement with Aussie Broadband in favor of a deal with Superloop. The deal, an exclusive six-year wholesale contract will see the migration of Origin’s broadband customer accounts, currently 130,000 and growing, onto Superloop’s network. Upon completion of the transition, the contract is expected to add $19 million of annualized earnings before interest tax and depreciation (EBITDA).

Superloop CEO Paul Tyler commented:

The contract consideration is a significant chunk of share capital and options issued to Origin.

Origin will receive 9,847,690 Superloop shares upfront on signing, another 9,847,690 Superloop shares on the completion of the migration of 130,000 customers, and up to another $30 million of Superloop shares subject to achieving further customer growth milestones. Furthermore, Origin has been granted 55,672,002 options upfront on signing (equating to approximately 10% of Superloop’s diluted share capital), entitling Origin to purchase the same number of Superloop shares at the prevailing volume weighted average price (VWAP) of Superloop shares on the trading day before Origin exercises its option.

With a significant interest in Superloop, we believe the company could be subject to a bid from Origin in the future.

Superloop recently reported a strong financial improvement in the first half of 2024.

Total revenue grew by 32.7% to $197.6 million with organic growth increasing by 20% across all three customer segments. The company reported an underlying EBITDA of $23 million, an increase of 83% in the prior year. Superloop has a significant depreciation and amortization expense due to the investment in acquisitions and plant and equipment. Despite this increase in the first 6 months to 31 December, the company’s loss after tax decreased by $3 million to $18.7 million. Having more than doubled operating cash flow for the first 6 months of 2024 when compared to the prior period, Superloop has a strong cash position with a 31 December cash balance of $42 million.

Following Superloop’s strong financial performance and significant contribution from the Origin contract the company has recently upgraded its FY24 guidance.

It is now forecasting EBITDA in the range of $51–53 million an increase from the previous $49-53 million range. Superloop is of the belief its efficient cost structure and operational model foster a competitive edge, ensuring sustained earnings growth and cash flow generation. With substantial new sales and subscriber growth Superloop is anticipating a 60% – 70% year-on-year growth in Underlying EBITDA for FY25, Superloop plans to allocate a one-time incremental $5 million in growth Capex across FY24 and FY25, in addition to its $20-22 million Capex guidance range.

Superloop is emerging as a resilient and promising player in the evolving telecommunications market.

Smaller providers like Superloop are steadily gaining market share, contrasting the decline experienced by major players. With bold strategic moves including the Aussie Broadband rejection and a lucrative deal with its rival’s customer, we believe the company is making all the right moves. While the Aussie Broadband sell down may be a temporary distraction the business fundamentals haven’t changed and we feel there is strong value within this growing company.
​
As such, we feel investors should closely monitor Superloop’s trajectory and is a company with a promising story.