Result broadly in-line with our expectations
Superloop (SLC) reported revenue of A$55.5m was up 5x year-on-year and in-line with our A$55.1m forecast. Higher network and operating costs meant EBITDA increased approximately 3x year-on-year to A$11.8m at the reported level and A$12.5m on an underlying basis. This was broadly in-line with our A$12.3m forecast. Depreciation and amortisation charges were up substantially year-on-year and ahead of our forecast. NPAT of A$1.8m was up 2x year-on-year and slightly below our A$2.2m forecast. Operating cash flow improved substantially year-on-year to A$6.3m (vs Morgans A$6.6m forecast). Capex was down year-on-year and above our forecast resulting in SLC's debt increasing year-on-year to A$21.3m which is an undemanding 1x annualised EBITDA.
Noteworthy items – simplification and sales
There is a fair degree of complexity in the Au businesses (mostly due to some of the challenges that come with M&A). SLC have made a concerted effort to streamline and automate operations. SLC's dedicated "Red Team" is tasked solely with streamlining and automating - there is currently too much manual intervention for provisioning, billing and support which means delays, errors and unnecessary costs can arise. Automation can lower costs and improve time to complete. Separately SLC's "Blue Team" maintains Business As Usual processes and, on successful integration, these teams should fold into a single team and substantially lower network and operating costs going forward.
New contracted annual revenue increased by A$13.8m in 1H18 (on an organic basis). SLC has meaningfully upgraded its sales team (numbers and experience) and now has 4 FTEs in Singapore, 4 in Hong Kong and 72 in Australia. The calibre and scale of the sales team is starting to pay dividends with year-on-year sales increasing 170% in Singapore and 160% in Hong Kong.
We have reduced our EBITDA forecast by approximately 5% over FY18 and FY19. Higher depreciation and amortisation means our reported EPS forecasts decline more. Our positive investment view in not premised on short-term earnings but rather medium-term upside as asset utilisation improves. SLC's AU investment has somewhat muted the progress overseas but we expect this will turn from a short-term cost drag into a medium-term upside risk (as simplifying and automating should substantially lower the cost base over time). The key risk/reward for SLC remains its ability to monetise the assets through an improving sales trajectory.
We retain our Add recommendation.
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Disclaimer(s): Analyst owns shares.
Morgans Corporate Limited was lead manager to the placement and SPP of shares in Superloop Limited and received fees in this regard.
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