BCC updated valuation. +$1 by FY23 end

PART 1
As promised, here's an updated BCC valuation thread. I don't normally share my detailed notes but I think BCC is somewhat misunderstood, there remains no broker coverage and we seem to have a good collection of people in this forum who constructively contribute such as @StealthInvest @Veecat and many others. Also, from a financial modelling perspective, BCC is extremely complex due to the JV, which for me makes it interesting.

Most importantly though, I think BCC is undervalued and represents a compelling investment opportunity (IMO).

For new holders that want to do a bit of catch up take a look at the original thread here: https://hotcopper.com.au/posts/49560501/single

In the meantime I will have to break this up into a few posts otherwise it will get too long.

Investment thesis

1. Low market cap
Often the big returns are made from a low base. Beam has a strong balance sheet, is profitable and cashflow positive, yet it has a market cap of just $16.9m and an EV of $13.9 - no that is not a typo. That EV is equivalent to an explorer that hasn't even started digging and yet we've got a profitable, high growth, tech-type business with a similar valuation. This presents multi-bag potential - keep reading for why

2. Established business with market leading products

Beam has been operating for over 25 years and has established partnerships with 3 of the largest satellite providers globally in addition to other highly reputable businesses. It operates in the satellite communications services industry but specialises in devices. This is a niche industry that has high barriers to entry as you need access to satellite providers who provide the airtime that make the devices function.

Beam has a diversified product range but the two biggest value drivers are Zoleo and devices for Iridium.

Zoleo has won so many industry awards I've lost count - please check ASX announcements for a full list. Effectively it's a Garmin killer and competes favourably against Garmin's InReach mini (more details further below)

Iridium ($6bn market cap) is a telco that provides satellite communication and devices for consumers, governments and businesses. Beam makes some of Iridium's most popular devices such as the Iridium Go (sold almost 60,000 units since 2014). Unlike iPhones etc, satellite phones and devices last a very long time and have very long product cycles. They are more functional than fashionable but that provides benefits for manufacturers of these devices. Iridium has recently invested $5bn in their new network, which will spur demand for new devices, which will help drive Beam's high margin device sales.

3. Beam (Zoleo) is a challenger in a growing market
Zoleo's closest competitor is Garmin (market cap $34bn, PE ~28x), which has an established brand and market. Comparatively, Beam barely registers a market share but has a Garmin killer that specification and award wise, wins hands down. It's also priced cheaper. This represents the perfect recipe to win market share (or be taken over). @StealthInvest is all over the product and keeps everyone updated as things move quickly




4. Beam/Zoleo is growing, executing and moving into new markets quickly
Example 1:Growing its retail presence. Beam has a number of SatPhone shops but the primary sales channel is online and other retail shops such as Australia Post and Anaconda. The retail presence of Zoleo is growing extremely rapidly which means more of an opportunity to sell devices. This will continue in FY22 and beyond as more retailers are signed up.

Example 2:Expanding into new countries. For anyone that has done any research, Zoleo is a JV with gross profits split by specific territories. Beam's territories include Australia, New Zealand and Asia. Roadpost's territory is North America and the Rest of World (ROW) is split 50/50.

Beam expanded into NZ in August 2021 and will announce some retailers shortly. ASX announcement 6th August below
Beam will then expand into the UK and selected European markets in early 2022 and later that year 1-2 Asian markets. China? This will grow the Total Addressable Market available to Beam

Example 3:Expanding into new verticals. Zoleo's first market has been the consumer market but Beam is actively going after the Government and Enterprise market too, which is large and lucrative. In early August it made a big hire to drive growth in this market.

5. The satellite Personal Communications Device market is expected to expand by 29% per annum through to 2025
This is an exceptional growth rate for any industry and with Beam expanding into new markets and verticals, it puts the Group in a strong position to capture some of that growth.

Effectively we have a fast growing business in a fast growing market.




6. There are multiple levers to improve value added services to boost ARPU
Like a typical telco, valuation is a function of subscriber growth and Average Revenue Per User (ARPU).
The holy grail is subscriber growth AND ARPU growth.
Beam with its Zoleo product is just scratching the surface with subscriber growth, but ARPU growth remains possible too.

There are 3 plans for Zoleo ranging from a low touch one to an all you can eat one.



Right now ARPU is $45 or $40.50 if you exclude GST but it is growing. One reason why it is growing is that messages on the network are increasing rapidly. Given ARPU is low, it implies most plans are Basic or In Touch.




BUT, those plans only include access. The message cost is higher. In Australia, it ranges from 65c to 50c. This will help to boost ARPU in addition to a host of other value added services Beam is working on. For my modelling, in another post, I model a static ARPU to be conservative. An increase in ARPU MATERIALLY impacts the valuation.




7. Finally, Beam is a misunderstood stock.
One of the reasons I share my research on Beam is that I believe it is a misunderstood and complex investment. I have a little bit of experience in this area and even I've been confused at times, which hasn't been helped by poor disclosure (note: this is improving).

In my experience, one way to making outsized returns is to find misunderstood or under the radar stocks as they lack a following and often have a discounted valuation. It often requires lots of patience but if you get it right and the company delivers, new investors arrive as re-rates occur. If it continues to grow it might get some broker coverage and if it passes, say $100m in market cap, instos will come on board, who will really bid up the price (note: It's a reasonably tight register with the top 20 owning 60% of the company)

For now, while it is profitable, the financial results do not reflect the positive talk and what a few of us see. The reason for that is that Beam have been selling devices to the JV for which Beam earn a small margin. However, the JV then need to sell those devices to consumers. There is a lag between device sales and subscribers. Then there is another lag as airtime revenue is billed monthly, so it starts off small but as subscribers grow and churn stays low (note: churn is 1.5%), this compounds quickly. I'll explain and show this in more detail later...


So that's why I'm invested here and if you're new, why you should dig a bit deeper.

I hope you've enjoyed the read. In the next post, I'll share some numbers and what that means from a valuation perspective. GLTAH