With government intervention in supply lines, rapidly approaching 5G, and a hotbed of competition, the Telecommunications Services sector of the ASX is an interesting place at the moment.
Amaysim Australia Ltd Capital Raising and results
Amaysim Australia Ltd (ASX: AYS) shares entered a trading halt on 22 February and will stay there until 28 February as the company issues new equity to existing shareholders. The Amaysim share price is currently down 40% on its high of $1.57 traded this time last year.
A challenger brand in telecommunications and energy with a market cap of around $200M, Amaysim is seeking to raise $50.6M from retail and institutional shareholders with the intention of restructuring debt and investing in expansion activities.
After debt restructuring, $17.6M will be used to invest in marketing, a new energy product suite, and upgrading the technology stack to support growth.
The top, middle and bottom line for Amaysim's interim results released 26 February are as follows:
- Net revenue down 5.6% to $263M
- Underlying EBITDA up 32.2% to $29.2M (up 11.3% to $23.5M under previous accounting standards)
- Net loss after tax $4.8M
At the segment level, Energy profit increased by 27% and compensated for an 8% lower profit in mobile. Looking forward, Management forecasts operating EBITDA between $44-$48M (under the new accounting standards) for the FY19 full year indicating a tempered second half.
TPG Telecom Ltd's strategic frustrations
TPG Telecom Ltd's (ASX: TPM) share price has reflected the repeated strategic frustration the business has faced. First, in partnering with out of favour Chinese equipment provider Huawei to roll out the 5G network. And, expression of preliminary concern by the ACCC around the proposed merger with Vodafone Hutchison Australia. The final decision from the regulator is due on 28 March 2019.
As announced yesterday, 26 February, if the Vodafone merger is scuttled by the ACCC, TPG Telecom will be looking at a circa $228M impairment due to write-offs from the 5G kerfuffle.
Is Amaysim's strategy TPG Telecom's competition problem?
Amaysim has busily divested from the fixed line Broadband business in the past half year with a view to focus on mobile services.
Among other issues, the ACCC is considering whether fixed line Broadband and mobile plans may become increasingly substitutable products, particularly as 5G services arrive. That substitution could push Vodafone and TPG into more direct competition.
Amaysim is basing its strategy, and appeal to the market for capital, on the assumption that fixed-line broadband is not a requisite for packaging services to households. If the ACCC agrees that mobile substitute for fixed line broadband, TPG's merger plans could be sunk.
Foolish Takeaway
TPG's challenges could push short term damage to results and lessen the effectiveness of one of Telstra Corporation Ltd's (ASX: TLS) primary competitors as the 5G transition moves ahead.
Personally, I like the decisive action being taken by the Amaysim team, raising a quarter of their market cap and looking to combine telecommunications and energy into a complementary, customer friendly offering. The commoditization of mobile services makes the cross-sell with traditional 'household utilities' like energy a believable proposition.
Amaysim's share price may also follow the entitlement offer's discounts to cheaper territory. The potential upside certainly appeals to my inner small to mid-cap thrill seeker.
