I've been meaning to post my notes on BCC for a while.
has done some excellent work on the Zoleo economics in another thread but Beam is more than just Zoleo, so I thought I'd build on that and more importantly, get to what I'd call a fair value for BCC.
I might need to to do this over a few posts to make this easier.
Beam Communications Holdings Limited designs, develops, manufactures, sells, and distributes a range of satellite communication terminals, docking units, and handheld phone accessories. It also offers push-to-talk products, modems, antennas, and cables; gateways and cellular antennas; and data airtime services.
The company sells its products through a range of retailers and distributors including Kogan, Anacanda, Myer, SatPhone Shop, Amazon, Ebay plus more. With the introduction of Zoleo - a largely consumer friendly device, more distributors are likely to be signed in the near future increasing the sales potential of the Group.
Beam operates in Australia, the United States, the United Arab Emirates, the United Kingdom, China, Canada, Japan, and internationally. The company was formerly known as World Reach Limited and changed its name to Beam Communications Holdings Limited in November 2018. Beam Communications Holdings Limited was incorporated in 1985 and is based in Mulgrave, Australia.
ProductsBeam operates in a niche market. It designs and sells devices that are part of the satellite equipment market. Critically, it owns the IP to all devices and is required to continually invest in R&D to maintain a competitive edge. It sells products for major satellite services like Iridium and Inmarsat and recently has developed its own product, Zoleo, which it is selling directly via other channel providers. Manufacturing is undertaken by contract manufacturers including Season Group, whose CEO, Carl Hung, was on the board of Beam until recently.
How Beam makes moneyBeam makes money from two channels;
equipment sales and
airtime. As mentioned above, Beam owns all the IP for the equipment and sells on order - there is no or very limited inventory risk.
Equipment sales are fairly simple. Iridium, Inmarsat or another provider will put through an order for x volume and Beam will supply that order.
Gross profit margins on equipment ex Zoleo are 40-45% (per historical financials). Zoleo margins are not broken out but are thought to be low based on management guidance. I've estimated 15%. We'll be able to work this out roughly in about a year when we can measure the rate of change in the GP margin with the introduction of Zoleo.
Airtime - this is the sexy bit as it's very very high margin and with Zoleo, largely recurring.
Zoleo is the company maker for Beam. It's product based on customer feedback ranks ahead of Garmin (the next best), it's tech specifications are better and it's priced lower. Beam deliberately sells the equipment cheap to make recurring and high margin airtime revenue.
Zoleo is sold around the world but can largely be broken up into three market. North America, Aust & New Zealand (ANZ) and Rest of World (ROW).
Zoleo is sold through Zoleo Inc, a 50/50 JV with Roadpost. Beam provides all the equipment and makes 100% of the revenue and associated margins from equipment sales.
This bit is important...Airtime is split differently. North America, which is the largest and fastest growing market is split 85% to Roadpost and 15% to Beam. ANZ is 85% to Beam and 15% to Road Post and ROW is split 50/50. This is important to understand as it's not the volume of sales that are announced that is important, it's which market it is sold into.
FinancialsMy focus will largely be on the forward periods. FY20 vs FY19 does not tell the story and if you quickly glanced at the numbers you will see that revenue went backwards, as did profit in FY20 vs FY19. Not exactly a high growth business hey?
It's also worth noting that I have split Zoleo equipment and other equipment. As we know Zoleo sales in FY2020 and the price is $350 we can work out what the balance was based on segment reporting. That amount was $10.8m - a not insignificant number. I'm assuming 'other' equipment sales for FY21 of $11m or $5.5m per half. It jumps in FY22 when new Certus equipment will be launched. It's important we split this out as the GP margins on 'other' equipment and Zoleo equipment are very different. If you don't split these out then the GP margin breaks down and is inaccurate.
It's worth noting that
ARPU is very material and sensitive to the valuation given how high the margin is. While Beam won't disclose what the ARPU is they've confirmed with me that my assumption is a good one so read into that what you will. I use $42.50 based on the weighted average break-down above.
Also, I've needed to account for phasing of customers. This means that new customers will not have joined on the 1st of the half. As such we need to account for new customers being part contributors to revenue for a half. I use a phasing multiple of 60% of new customers. My airtime telco assumption is 30%, implying gross margins of 70% for airtime.
This is probably too low.
I'll put up the full P&L and valuation table in another post as this is already too long
(20min delay)