Report from the Switzer Report Amaysim Australia As broking...

Report from the Switzer Report
Amaysim Australia
As broking firms speculate about Vocus, far less consideration has been given to small-cap operator Amaysim Australia.
To recap, Amaysim raised $207 million and listed on ASX in July 2015 through a float at $1.80 a share. The price initially soared, then the mobile-services operator tanked to $1.50 in February 2015 after reporting disappointing revenue and customer growth. A sharp downgrade to prospectus subscriber forecasts dented the market’s confidence in the company and it has struggled to get back above the issue price.
Amaysim looks like a basic business. As a reseller of the Optus spectrum, it has lower margins and faces cut-throat competition, which includes retailers such as Aldi that sell phone plans. Buying businesses that do not have a clear advantage in a commoditised, price-taking segment is rarely a good idea.
But Amaysim has some interesting traits. The company’s online model allows it to acquire customers at a fraction of the cost to big telcos and by leasing mobile spectrum off Optus, Amaysim has a relatively capital-light business model compared to telcos that must invest in and maintain networks.
As customer numbers grow, economies of scale improve. Amaysim’s EBITDA margins are rising and it is potentially a very profitable business as scale is built. TPG Telecom’s plan to build its own network and disrupt the mobile market has implications for
Amaysim. TPG will need a lot of customer growth to make its $2-billion network investment pay off.
Amaysim’s 1 million-plus subscribers would boost TPG Telecom’s customer base and provide another low-cost channel to keep customer numbers ticking higher. The $5.4 billion TPG Telecom has plenty of firepower to snap up the $400 million Amaysim.
Another possibility is Optus, Amaysim’s wholesale partner, jumping in first to counter the threat of TPG. Optus would lose a decent chunk of subscribers if Amaysim went to TPG and acquiring Amaysim would give Optus wholesale and retail margins on the customer base.
Optus would get Amaysim on a cheap multiple, protect its subscriber base and improve its competitive positioning as TPG expanded in the mobile market.
Whatever happens on the corporate front, Amaysim ticks the first box of takeover investing: finding businesses that are attractive at the current price with or without an acquisition.
A small-cap telco with a million-plus customers and knack of acquiring them at low cost has latent strategic value in a fast-changing mobile-services landscape.