Ann: AGL: Enters binding agreement to acquire Click Energy Group, page-23

Stock down 10% today and I am not surprised.

My best guess is larger investors are having private phone calls with the management and some ugly truths getting through.

Yesterday's call was once again an orchestrated show, as only 3-4 investment bankers were allowed to ask "positive" questions. What a farce to hear these people talking about general issues like competitive landscape, 5G and ARPUs, while nobody asked any important question about the divestment of it core business:

1) What will happen to the 25m derivative liability that suddenly arose after the divestment?

2) Which "last-minute" working capital changes/re-allocations can be expected before de-consolidation happens? Please remember WC swings in electricity reselling are huge, can be 10-20m per month! Has the risk been capped in the divestment agreement?

3) Why was "On the move", once been described as a pearl and a significant mobile customer delivery channel, part of the divestment? As this was part of the mobile segment, which amount of EBITDA will Amaysim additionally lose? Furthermore, because Amaysim sold an important channel to acquire mobile customers, how much will Amaysim pay AGL in the future to win and transfer mobile customers back to Amaysim?

Well, it is quite clear, why all this questions have not been asked: Because the answers are all very negative. I would not be surprised if the next company announcement in a few months is due to a significant reduction of the factual divestment price, maybe more than the 10-15m, Amaysim has already conceded as a given in the "financial impact" part of its divestment release (53m debt repayment & 50m cash increase versus "transaction price" of 115m). However, please note the legally important words "At the time of this announcement...", which opens the door for the acquirer to demand more favorite terms...

Anyhow, as it stands today, on the basis of the transaction price of 105m (115-10), how is selling 30m yearly EBITDA a good outcome? A multiple of 3.5x for a business that was supposed to be stable, cash rich and had promising growth potential? It appears that the EBITDA has clearly overstated the value of the operations and instead there were different value-determining factors in the eyes of the acquirer. I personally think the nature of the customer relationship plays a pivotal role, as I understand non of the energy customers is on a term contract, instead they can cancel their contract effectively any time.

Unfortunately, this "fugitiveness" also applies to the mobile customers. Amaysim does neither have the 30-50$ ARPUs, Telstra/Vod have, nor it has locked in subscribers for 12 months including auto-renewal. Amaysim's customers are non-corporate, young, internet-savy, price-sensitive and 100,000s may leave fast as soon as there is a better product or lower price.

Re comments of people, who are computing an acquirer of Amaysim will add 80-100m EBITDA, or Optus will lose the same, when Amaysim is acquired by a third party, I can only repeat that these numbers are falsely calculated.

One more try to demonstrate what is at stake:

Rounded off, Amaysim's mobile segment shows revenues of 190m and cost of sales of 110m, so 80m gross profit. Furthermore, the segment shows 70m fixed costs, so EBITDA is 10m. As a reminder: the 110m is the yearly cash flow from Amaysim to Optus = the cash flow already owned by Optus. Assuming Optus is able to cut 20-30% of Amaysim's fixed costs after acquisition = 15-20m cost savings, the "New EBITDA" would be 25-30m. This post synergy EBITDA forms the basis for a value calculation, which is difficult enough on its own. I personally would regard 5-6x EBITDA (after synergies) as a rich valuation leaving little value appreciation for Optus' shareholders. There is maybe some single digit growth p.a. in the next couple of years, but there is also this high-risk nature of the customer base. 5-6x EBITDA would translate into a company valuation of 125-180m. Adding an estimated net cash after divestment of 60-65m (10-15m lower than my estimate yesterday, see above) and we get to 185-245m as equity valuation. This is not far away from where we are today. === Shares are fairly valued ===

What will happen, when Amaysim improves its terms in a new wholesale deal? Today, Optus and Amaysim share revenues by 60/40, giving Amaysim a 40% gross margin. My best guess is both players amend this ratio to 55/45 or 50/50, more likely the latter. This change translates to roughly 10-20m additional gross income = 10-20m more EBITDA and in turn endows Amaysim with a 20-30m going concern EBITDA. On the basis of todays enterprise value (post divestment) of 145-150m, the EBITDA-multiple post wholesale renewal would be 4.8-7.5x, which does not signal any valuation upside either. === Again, shares look fairly valued ===

Needless to say, there is significant upside, should Vod/TPG/Telstra attempt to acquire Amaysim. But I don't think this is likely to happen any time soon because of following factors:

1) Industry coping with Covid-related EBITDA erosion
2) Capex spent is clearly on the rise due the 5G build up
3) Focus on merger digestion
4) Compression of valuation (Telstra trading at 6.5x, Vodafone 5x etc.)
5) Amaysim having an unattractive (low ARPU + very high risk) = more prepaid-like customer base
6) Significant migration/execution risk

As a result, I see Amaysim trading on a going concern basis in the quarters to come === Again, shares look fairly valued ===