2018 Year ahead

Season greeting, lets hope we get a better return in CY18, some things to watch for;

Most topical on late is sale of NZ, a good sale price will reduce debt, and reduce concern about our negative cashflow due to investment expenditure. Beyond that, the commercial value of NZ will test the credibility of accounts after recently reviewing assets and writing down its value. If NZ is sold below book price with no negative influences between that valuation and sale, then we have to accept that such optimistic valuations also apply to Australian assets, and realistic book value per share should reduce by more than the value of NZ.

Close second to that is asset sales is expenditure, i see ASC as very important for the companies future, it should reduce our international backhaul costs, and helps extract value from our domestic backhaul from Enterprise and Wholesale, and inbound from Over The Top services to NBN POIs. There is no doubt in my mind we will get a good ROIC over its lifetime.
Once ASC is paid for i hope we can be cashflow positive for for a couple of years before the next big move.

I se cashflow and gearing are the two biggest factors keeping our share price down, if we can sort that out we could see new money coming in due to reduced risk and a positive re-rating.

In terms of organic growth, there are no signs of any significant margin improving in Consumer, it could be that $20 AMPU is the new normal (down from $25), or maybe it has further to fall. In any case our peers wont have any technical advantage over us infrastructure wise when ASC is done, long term market share will be driven by consumer focused aspects, marketing, customer service etc.

Now that iPrimus has been re-launched, we are starting to see brand divergence (iPrimus=Value seeker, Dodo=Price seeker), recent pricing changes make iPrimus cheaper than Dodo for higher end plans with phone bundled. It will be interesting to see how that effects market share.

The smaller RSP dont have their own backhaul, so have a financial disadvantage, especially as bandwidth use increases. Its likely they will consolidate (or stagnate) with Aussie BB likely to be the challenger to emerge as a potential threat to the big four in coming years, i expect Aussie will beat Vodafone for 5th place for fixed line despite Vodafone having some backhaul (TPG building)

Consumer is our public face, but Enterprise and Wholesale is where we make our money, and this is where meaningful revenue growth can come from, we have more PP&E per share than any other telco, but low ROIC. Increasing utilisation of those assets from E&W is how we improve cashflow and ROIC.

Commander (SMB) moving to E&W was another change that happened last year, and with NBNCo rolling out to the SMB this year, and with Vocus one of four partners focused on reselling NBNCo business we could see significant growth from SMB.

The Q1 update said sales targets had been met in E&W, and provision backlog had halved, which is a good sign that things are improving internally.

I suspect the significance of Michael Simmons stepping down from the board to take charge of E&W wasn't fully appreciated at the time, but in time it will be seen as one of the things that turned the company around. One day he could be CEO, but lets not wish for any leadership changes after, its hard to read Geoff from afar, but i suspect he is very good with strategy.

Im sure ive left out some significant events, will be a significant year for mobile for our peers, but im happy to be watching that from afar for now.