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Private Client Research
9 June 2021
Superloop (SLC) has acquired leading Australian internet service provider Exetel for
$110m, comprised of $100m in cash and $10m in scrip.
The acquisition was a surprise to Ord Minnett, particularly given the company’s
patchy track record with previous acquisitions (such as BigAir). Strategically,
however, we believe it does make sense given: 1) earnings accretion from the
acquisition with direct cost synergies; 2) a significant increase in scale for Superloop’s
consumer and small to medium-sized (SMB) broadband business; and 3) ample
excess capacity on Superloop's network. Management’s ability to grow and retain
customers will be key.
Superloop represents a rapid turnaround story backed by infrastructure ownership.
Following the acquisition of Exetel, we have much better visibility on the pathway to
profitability, and the combined business will be a stronger competitor in the domestic
fibre and broadband market.
We maintain our Accumulate rating on Superloop with a $1.35 target price.
• Exetel acquisition – The acquisition will be funded by a fully underwritten $51m
entitlement offer and a $49m placement. The offer price of $0.93 per share
represents a 10.6% discount to the latest closing price, and $10m in scrip will be
issued to the vendors at $1.01 per share. At least 117m shares will be issued,
representing a 31% increase in the total share count.
• Exetel – Exetel has more than 110,000 consumer and business customers, and is
forecast to record FY21 revenue of $150m and operating earnings (EBITDA) of
$11m, implying an enterprise value (EV) to EBITDA acquisition multiple of 10x.
Management expects $5m of run-rate synergies from bringing customers ‘on-net’,
and the combined entity will also allow the cross-selling of mobile and voice over
internet protocol (VOIP) services to Superloop customers.
• Strategic fit – Exetel should bring positive cash flows, and a rapid way for
Superloop to monetise and increase utilisation of its network. The combined
business will have 155,000-plus consumer and SMB customers, positioning
Superloop as a stronger competitor to the incumbents in the market, in our view.
• Earnings revisions – We have updated our financial model to include the Exetel
acquisition. Our revenue forecasts have increased 96% to $294m in FY22 and 86%
to $323m in FY23.