BigBlu offers compelling value and bumper free cash flow

First-half results from Aim-traded BigBlu Broadband (BBB:42.5p), a provider of alternative superfast satellite, fixed wireless access (FWA) and 4G/5G broadband products, were complicated by the impact of currency movements and £2.3mn of exceptional charges.

However, on a constant currency basis, like-for-like revenue and cash profit increased by 3.1 per cent and 21 per cent, respectively, albeit investors will focus on the actual 2 per cent increase in cash profit to £2.06mn on flat revenue of £15mn. The one-offs reflect £1.3mn of restructuring costs to ‘rightsize’ the Nordic business, mainly redundancies which have produced annualised savings of £0.5mn, and decommissioning loss-making towers.

First-half revenue held steady at £1.9mn in the Nordic business despite the customer base falling 11 per cent to 7,500 as loss-making accounts were exited, helped by the success of the Telenor FWA agreement and improvements in underlying customer churn. Analysts at house broker FinnCap believe that as BigBlu’s agreement with Telenor scales up, and BigBlu benefits from upgraded systems with satellite operator ViaSat, the Nordic business should deliver double-digit organic revenue growth both this year and next. The directors are considering all options (trade sale, merger and MBO), highlighting a sharp focus on realising value from BigBlu’s assets.

They are also focused on lifting the 55,100 customer base of Australian subsidiary SkyMesh to 80,000 over the next three years both through acquisition and organic growth. Selective price increases have been applied with a focus on moving customers to market rates, so boosting average revenue per user, and the business is successfully countering the competitive threat from rival Starlink, too. Around 25 per cent of SkyMesh’s customer base has been transferred to more attractive product offerings from Australian government-backed NBN Co, a wholesale broadband access provider, to reduce churn rates.

Factoring in 6 per cent organic revenue growth for the full year, increasing to 13 per cent in 2024, analysts believe that SkyMesh should deliver annual cash profit and free cash flow of more than £4mn in both financial years and have upgraded their net cash estimates by 4-5 per cent to £2.8mn (2023) and £5.6mn (2024). It means that the value of BigBlu’s unlisted stake in Quickline, a company that is building FWA networks to address the ‘digital divide’ in the UK, and net cash could be worth half of BigBlu’s market capitalisation by the end of 2024. On this basis, the Nordic and Australian businesses are in the price for two times their estimated cash profit. Rivals command ratings four times higher.

So, having made the case to buy the shares, at 41.5p (‘This broadband company’s share price fall will soon reverse’, 13 June 2023), I feel there is compelling value on offer. Buy.

■ Simon Thompson’s latest book Successful Stock Picking Strategies and his previous book Stock Picking for Profit can be purchased online at www.ypdbooks.com at £16.95 each plus P&P of £3.75, or £25 plus P&P of £5.75 for both books.