Aussie Broadband HOLD: Fibre Expansion Strong, Yet Valuation Warrants Caution

Key Takeaways: Since our initial coverage of ABB at $4.22 per share, the stock has climbed over 36.9%, reflecting the company’s steady operational execution and clear growth strategy. Aussie Broadband (ASX: ABB) stands out in Australia’s telecom sector, combining its core broadband business with the FY24 Symbio acquisition and focusing on customer experience, fibre infrastructure, and Australian-based support. In FY25, revenue reached A$1.1 billion (up 18.7% YoY), underlying EBITDA hit A$138.2 million (up 14.7%), and the company added over 100,000 new internet customers, lifting NBN market share to 8.4%. Wholesale deals with More and Tangerine are expected to add 250,000 connections and A$12 million in annual EBITDA by FY27. With strong margins, 36.1% overall and over 45–50% in Enterprise and Business segments, solid cash flow, and a healthy balance sheet, ABB is well-positioned for growth. That said, much of this momentum appears priced in, so we maintain a HOLD rating. --- Since our initial coverage of ABB, when it was trading at $4.22 per share, the stock has gained more than 36.9%, reflecting the company’s consistent operational execution and growth strategy. Aussie Broadband Group (ASX: ABB) continues to stand out in Australia’s competitive telecommunications sector. The Group combines its core broadband business with Symbio, a Tier-1 voice provider acquired in FY24. Its focus on customer experience drives strong loyalty and higher ARPU than competitors. This is reinforced by investments in fibre infrastructure, proprietary software for data and billing, and Australian-based customer support. These advantages have helped Aussie Broadband steadily gain market share, particularly among high-value NBN customers, while expanding its offerings to include residential, business, enterprise, and wholesale solutions. Momentum from Strategic Execution: Solid Financial Performance Backed by Growth Initiatives Aussie Broadband’s FY25 results reflect its strong operational execution: - Revenue: A$1.1 billion, up 18.7% YoY - Underlying EBITDA: A$138.2 million, up 14.7% YoY - NPAT: A$32.8 million, up 24.5% YoY - New internet customers: 100,000+, pushing NBN market share to 8.4% - Divestment: Sale of Buddy Telco for A$8 million to focus on higher-margin segments - Wholesale growth: Six-year agreement with More and Tangerine expected to add 250,000 connections and A$12 million in annual EBITDA from FY27 The ‘Look-to-28’ strategy sets ambitious targets—group revenue above A$1.6 billion and EPS growth exceeding 20% CAGR—offering a clear roadmap, though current market conditions suggest limited near-term upside. Industry Outlook and Fibre-Led Market Dynamics: Shifts in Demand and Opportunities for Agile Providers Australia’s broadband market continues to shift toward fibre, driven by growing demand for high-speed internet for remote work, digital services, and entertainment. NBN Co’s rollout of multi-gigabit plans from September 2025 accelerates this transition, particularly for FTTN and FTTC customers. Smaller, agile providers like Aussie Broadband continue to capture share from incumbents, reflecting customer preference for quality over price. Rural connectivity challenges and upgrade costs remain, but the outlook is positive for providers with robust fibre networks and high-speed offerings.

Earnings, Profitability, and Margins: Strong Performance Across Customer Segments Key figures highlighting Aussie Broadband’s earnings and profitability: - FY25 Underlying EBITDA: A$138.2 million, up 14.7% YoY - FY26 Guidance: Up to A$167 million, growth of 14–21% - Gross Margin: 36.1%, with Enterprise and Business segments exceeding 45–50%, residential 30–31% - Dividend: Fully franked 6.4 cents per share for FY25 - Symbio contribution: Boosted EBITDA beyond expectations Balance Sheet Strength and Cash Flow Generation: Providing Flexibility for Strategic Growth The company maintains a healthy balance sheet and strong cash flows. H1 FY25 operating cash flow before interest and tax reached A$128.2 million, up 54.1% from normalized FY23. Net borrowings fell to A$101.1 million after repaying A$120 million in FY24. Capital expenditure of A$32.6 million, including A$15.4 million in software, supports ongoing fibre expansion and platform development, underpinning the ‘Look-to-28’ growth strategy while maintaining financial stability. Valuation and Outlook: HOLD Rating Reflecting Strong Fundamentals with Limited Near-Term Upside Aussie Broadband’s fundamentals, fibre-led growth, and diversified offerings support steady performance. However, much of this momentum appears priced in at current levels, suggesting limited upside in the near term. Given its market position and consistent execution, we assign a HOLD rating for ABB, acknowledging solid growth prospects while taking a cautious view on immediate gains.