The Aussie Broadband Ltd (ASX: ABB) share price has crashed 20% on news that Origin Energy Ltd (ASX: ORG) is planning to switch to Superloop Ltd (ASX: SLC).
Origin may be best known as an energy business, but it also offers broadband to households, which is currently via a white label wholesale agreement with Aussie Broadband.
Pain for the Aussie Broadband share price
The sold-off ASX telco stock announced it received unexpected notice on the evening of 13 March 2024 that Origin Energy will terminate the agreement, effective 12 April 2024.
Origin has requested that Aussie Broadband continue to provide certain services under the agreement for a period of up to six months after the termination and assist with the transfer to its new provider, Superloop. Aussie Broadband will continue to receive fees for providing services and will be entitled to recover its costs for assisting the transfer.
Under the most recent proposal by Origin, the EBITDA contribution from Origin would have “reduced considerably” because of much lower wholesale margins and Origin taking the non-network functions currently provided by Aussie Broadband. Aussie Broadband rejected this proposal on 7 March 2024 and offered an alternative idea, but didn’t receive a response from Origin.
In FY24, the Origin agreement is expected to contribute $14 million to EBITDA. Under the most recent proposal, Origin would have contributed $10 million of EBITDA in the first year on current volumes, with a declining EBITDA margin percentage in future years.
Aussie Broadband reaffirmed its recently-upgraded FY24 EBITDA guidance of between $105 million to $110 million.
It said it would reflect on the Superloop announcement.
Gain for Superloop shares
The Superloop share price is up 24% in response to the news.
It said Origin’s 130,000 (and growing) broadband customer accounts will transition onto Superloop’s network, with the transition expected to occur during FY25. This is an exclusive six-year wholesale contract.
This is expected to add more than $19 million of annualised EBITDA once the current subscriber base is fully transitioned.
In consideration for the contract award, Origin is going to be issued with around 9.85 million Superloop shares upfront on signing and another approximate 9.85 million Superloop shares on completion of the migration. Another $30 million of Superloop shares could be awarded, subject to achieving further customer growth milestones.
Origin is also being granted 55.67 million options upfront on signing, equating to around 10% of Superloop’s shares, entitling Origin to purchase the same number of shares at the same price as the previous trading day before Origin exercises those options.
Superloop reminded investors it has an ambition to grow its broadband customer base to 600,000 subscribers by FY26.
Superloop increased its FY24 underlying EBITDA guidance to between $51 million to $53 million, up from $49 million to $53 million. It’s expecting underlying EBITDA to grow between 60% to 70% in FY25, including the contribution from Origin.
