amaysim Australia Ltd. (AYS.AX)1H20 result: Stronger than...

amaysim Australia Ltd. (AYS.AX)

1H20 result: Stronger than expected gross margins but guidance adjustments disappoint; Neutral

Better than expected 1H20 (+18% vs. GSe on like-for-like) given higher mobile/energy gross margins. The higher mobile GM (c.40% vs. prior targets of c.30%) is a function of AYS revised NSA with Optus and the decline in mobile ARPU. In our view, given that AYS is investing aggressively for sub growth ahead of its contract re-negotiation (prior to Jun-22), the strong GM in 1H20 could limit the potential margin upside from any contract re-tender, as we believe it is unlikely that an MNO would offer > 40% GM to a specific wholesale partner. For its Energy business, AYS still expects continued regulatory headwinds in 2H20, so although revising our profile to reflect the stronger 1H20 performance, we continue to expect Energy margins decline below < 20% by FY23.

Guidance re-iterated, but now benefiting from AASB16: AYS re-iterated its FY20 EBITA guidance range of A$33-39mn, despite the strong 1H20, noting energy will be weaker in 2H20 (GSe 64%/36% skew). We note that AYS guidance now includes: (1) c.A$3-4mn of AASB16 benefits; and (2) Jeenee mobile (A$1-2mn).

We have revised FY21/22 EBITDA +2%/+4% and NPAT -30% / +2% following today's result, reflecting softer revenue trends but stronger gross margins along with incorporation of AASB16. We now focus on NPAT (rather than NPATA previously) given revised disclosure. Hence, although there are material revisions to published estimates, this also reflects the inclusion of c.A$15mn in amortisation expense (excluding this our changes would have been -87%/-66%). We have revised our 12m TP -5% to $0.36, reflecting: (1) a 0.25X reduction in mobile/energy target multiples given incorporation of AASB16; (2) the 1H20 result. Our revised TP implies +12.5% upside, but we stay Neutral the name given unappealing risk reward.

Key risks: (1) NSA terms negotiated with Optus; (2) competitive intensity in the SIM-only market; (3) cost discipline.