Founded in 2008 from the merger of two smaller regional providers, Aussie Broadband (ASX: ABB) is now Australia’s fifth-largest Internet retail service provider (behind Telstra, TPG, Optus and Vocus). Its main product is a connection to Australia’s National Broadband Network (NBN) for speeds ranging between 12 megabytes per second through to 1 Gigabyte per second, along with mobile phone plans, Voice over Internet Protocol (VoIP) and Fetch TV subscriptions. Aussie also acquired Brisbane-based telecommunications and IT solutions provider Over the Wire in 2022 to strengthen the Company’s position with business and enterprise customers

• Revenue up 27% year-over-year (YoY) to $379 million
• Operating earnings (EBITDA) up 86% YoY to $41.1 million
• Gross margin increased 250 bps YoY to 34.9%
• Total broadband connections up 27% YoY to 635.2k
  • Residential +17% to 495k
  • Business +24% to 47.3k
  • Enterprise & Government +10% to 7.26k
  • Wholesale +147% to 85.7k)
• Operating cash flow up 35% to $30.8 million (74.9% conversion of EBITDA)

Aussie has continued to increase its share of the NBN market, reaching 7.01%, up from 5.66% in the prior year (and 3.51% in June 2020 and 1.09% at June 2017). This is based on its well-known high levels of customer service, which again had it awarded ‘Most Trusted Brand in Telecommunications’ at the Roy Morgan Trusted Brand Awards (for the third year in a row). Aussie has also seen growth by branching out into wholesale (or ‘white label’) deals, including with Origin Energy, and with business and enterprise customers through the acquisition of Over the Wire and the buildout of its own direct fibre network.

Aussie’s fibre project was completed in the second half of 2022, delivering more than 1,200 kms of backhaul fibre that are expected to generate annual savings of around $13.5 million as 121 “Point of Interconnects” are transferred from agreements with Telstra to Aussie’s own network. This was part of the reason why the Company’s EBITDA grew much faster than revenue (along with some higher margin sales). Higher EBITDA was also the result of synergies from the Over the Wire integration, where Aussie has already delivered $6 million in annual run-rate savings.

While guidance for revenue for FY23 was lowered to a range of $780 million to $800 million (from $800 million to $840 million previously), profitability is now expected to be higher, with EBITDA margins now anticipated to be around 11% (compared to 10% to 10.5% previously).

Integration of Over the Wire remains a high priority for the Company, and Aussie believes they are on track to increase the projected annual savings to $8-12 million (from $6 million) by FY25. The merger is also anticipated to support growth in the business, enterprise and government segments – a key focus for the Company as it seeks to build on its success in retail broadband. The fibre buildout will also support the Company’s business and enterprise endeavours, allowing it to connect customers directly, resulting in much higher profitability.

Founded in 1999 by Simon Henry, DGL is a specialised chemicals business that offers a full suite of solutions from manufacturing to distribution, disposal, and recycling. It operates three distinct segments:

• Chemical manufacturing (agriculture and home gardening, automotive and trucking, mining and construction, water treatment);
• Warehousing and distribution (storage, transportation and logistics required to deliver chemicals and hazardous goods);
• Environmental solutions (end-of-life waste management, recycling).

In summary, it does everything from manufacturing chemicals, collecting them, storing them, and transporting them to more than 4,500 customers across Australia and New Zealand. It also provides treatment, recycling and disposal solutions at the end of the chemical’s useful life.

• Sales revenue up 52% YoY to $217.2 million
• Operating earnings (EBITDA) up 30% YoY to $29.7 million
• Net Profit After Tax (NPAT) up 22% to $10.4 million
• Operating cash flow up 47.4% to $22.4 million (conversion of ~108%)
• Net debt increased $34.7 million to $79.8 million (~1.1x FY23 EBITDA guidance)

DGL continued its history of strong financial growth, using its playbook of both organic growth and acquisitions. The active customer base expanded 39% since 30 June 2022 to more than 4,500, as it integrated 6 acquisitions and enhanced the transport and logistics fleet to more than 330. Revenue and underlying EBITDA have now grown at a compound annual growth rate (CAGR) of 107% and 77% between H1 FY21 and H1 FY23, respectively.

DGL made significant progress diversifying its revenue base, both in terms of its sector and customer concentration. Agricultural exposure is now 29% of revenue (down from 49% at the IPO), and its Top 5 customers now comprise 26% of the Company’s total (down from 43% at the IPO). Another measure of “earnings quality” also improved, with cash flow conversion reaching 108% – a healthy rebound from the prior half when DGL made some significant inventory investments that dampened cash inflows.

​DGL looks set to continue its history of strong growth, increasing its customer base organically by providing a wider range of services and geographical coverage, and making further acquisitions. The industry remains highly fragmented, and DGL has a history of sourcing deals when family-owned businesses undergo an inter-generational change in ownership. The Company upgraded full-year EBITDA guidance by $1.5 million due to the recently-announced acquisitions, and is now anticipating underlying EBITDA to be between $71.5 million and $73.5 million for FY23 (previous guidance was $70 million to $72 million at the Annual General Meeting). The rebound in cash conversion was a pleasing development, particularly given the increase in debt, while the softening in EBITDA margins is something to monitor in future periods. With a rising cost of capital, organic growth and management execution will remain the key points for DGL to continue delivering, particularly capital allocated to future acquisitions.

Disclaimer: ASX: ABB​ is currently held in the TAMIM Fund: Australia All Cap portfolio.