The Aussie Broadband Ltd (ASX: ABB) share price is on watch this morning after giving an update to investors.
Upgraded EBITDA forecast
Aussie Broadband announced today that based on preliminary, unaudited management accounts, the telecommunications business is expecting FY21 EBITDA (EBITDA explained) to be in a range of $16 million to $19 million.
EBITDA excluding IPO costs is expected to be in the range of $17 million to $20 million.
These numbers compare to the EBITDA prospectus forecast of $12.3 million.
Aussie Broadband explained that the increased EBITDA forecast has been driven by strong retail average revenue per user (ARPU), customer growth in the business segment, careful CVC (Connectivity Virtual Circuit) management and NBN promotional rebates.
Downgraded residential connection forecast
Aussie Broadband said that it’s lowering its residential connection guidance, from a range of 380,000 to 410,000, down to a range of 360,000 to 364,000.
The company’s previous guidance was that a number of white label customer transfers were going to occur in FY21. Now those are going happen in FY22.
Residential connections have also been affected by increased market competition in high-speed tiers due to NBN’s focus on the ‘Fast Campaign’ and most recently by NBN’s significant issues with its connection appointment system, which has delayed the re-start of new HFC connections.
NBN appointment availability issues have also delayed other connection types, resulting in the ASX share’s work in progress queues significantly increasing over the last five weeks.
Aussie Broadband continues to accept pre-orders for HFC services and will provision and connect these services once NBN allows HFC orders to be placed.
However, the business is performing well against competitors – it took 16.5% of overall NBN net adds in the third quarter of 2021.
Fibre build update
Aussie Broadband said that the rollout of the company’s optic fibre network to 76 NBN POIs (point of interconnects) and over 20 data centres continues with a complex section of the Sydney build nearing completion. Construction is now underway in Western Australia and Queensland, whilst it continues in NSW and Victoria. South Australia is due to start in the coming weeks.
The company anticipates completing 28 to 31 POI and data centre sites by 30 June 2021. It said customer interest in direct fibre connections on the Aussie network remains strong with 24 customer builds in progress and over 250 prospects in the sales pipeline.
Summary thoughts on Aussie Broadband and the share price
Profitability is the most important thing, so it’s good to see that EBITDA will be better than previously forecast. However, FY22 may see less-than-expected revenue growth because of that slower revenue growth. Some investors may not like the sound of that.
I’m not sure if Aussie Broadband is a buy or not. It’s growing well, but the telecommunications sector is a low margin industry. I’m not sure how large it can become either, and what happens if the world shifts to wireless 5G home connections rather than NBN?
There are other ASX growth shares I’d rather look at right now.
