Macq summary (19 / 8)  Subscriber growth back on track: amaysim...

Macq summary (19 / 8)

 Subscriber growth back on track: amaysim added 62k SIOs (organic) in the
second half, to deliver a closing subscriber balance of 966k, in line with
guidance (960-980k). This is a good recovery, given the issues experienced in
the first half, and comes despite ongoing aggressive competition in the prepaid/
MVNO markets. Critically, strong momentum has continued, with the
subscriber base up to over 985k subs to August 18. Subscriber growth is the
primary driver of the business, so it’s a very positive indicator going forward.
 Big step up in gross profit margins: For the 2nd half, gross margin improved
to 36.5% (1H was 30.4%) and gross margin per subscriber rose to ~$8.87 (1H
$8.03). These numbers are well ahead of prospectus estimates (which had
GP of $7.93/sub). In part this reflects the acquisition of Vaya in January. It is
also driven by the renegotiation of amaysim’s NSA with Optus and lower
distribution costs due to increasing online distributions and top-ups. We
continue to expect gross profit margins to moderate over time, and we have
them dropping from the full year number this year of 33.7% to 32.1% in FY17.
 Churn fell to 2.5% for the year: This number was 3.0% at the first half,
indicating a sharp decline in the second half to ~2.1%. This is a positive for
amaysim’s brand, and potentially also is influenced by Vaya’s churn levels
(acquired in January). Against that, gross subscriber adds were solid but not
spectacular at 30k per month (FY15 32k per month).
 Well positioned for earnings growth in FY17: Even after allowing for
compression in gross profit margins in FY17 and seasonality in the amaysim
business (bias to 2H), the business looks to be on a solid earnings trajectory.
We see EBITDA growing 20.6% to $42.7m (including Vaya) as a base case,
and adjusted EPS up 24.1% to 15.5cps. These numbers could be exceeded if
the current run-rate of subscriber growth continues or gross margins hold up
better than we have forecast.