- Adjusted cash profit of £2m on revenue up 14% to £14.9m in the six months to 31 May 2021
- H1 free cash flow of £0.4m and closing net cash of £4.5m
- No deferred consideration of Quickline divestiture due to global chip supply issues impacting 5G equipment rollout
Quickline, a company that builds fixed wireless access (FWA) networks to bridge the UK’s ‘digital divide’, has failed to reach growth shareholders in BigBlu Broadband (BBB: 50p) hoped after technology group Aim-traded sold its stake in the company last year.
BigBlu received £31.1 million in cash on completion, with up to a further £10.1 million payable as deferred contingent consideration subject to meeting performance conditions. Although acquirer Northleaf has invested £40m to accelerate Quickline’s growth since its acquisition, the company has only been able to build 41 FWA masts due to difficulties in securing 5G equipment. This reflects global supply issues in the chip industry and associated delays in the commercial launch of 5G services. Accordingly, there will be no deferred consideration payable. Although disappointing, BigBlu still retains a 5.08% stake in Quickline worth £7.3m (12.5pa share), and therefore still benefits to some extent from the value created by Northleaf.
However, BigBlu is primarily focused on two international businesses: SkyMesh, an Australian satellite broadband provider that targets customers in rural areas outside of the fiber footprint; and a Nordic FWA satellite and broadband business that has been restructured and plans to expand into Sweden and Finland.
In the first half of the year, the total number of customers increased from 58,300 to 60,400 even though Viasat, the provider of BigBlu’s satellite capacity in the Nordics, suffered a cyberattack (now materially resolved) which affected 3,000 customers and led to the closure of 500 accounts. More importantly, having secured a distribution deal with Telenor for ultra-fast broadband via 5G wireless, delivering speeds of up to 500 Mbps with unlimited data plans, Bigblu Norge is now showing “genuine momentum and traction in the market”, so much so that finnCap expects to return to double-digit organic growth in the current financial year.
Analysts also expect Australian activity to continue to generate robust growth. For example, New Zealand’s partnership with Asia-Pacific broadband satellite operator Kacific is live and picking up customers, and SkyMesh has strengthened its presence around Melbourne, having acquired Melbourne-based ISP Clear Networks. Melbourne. FinnCap expects the Australasian business to deliver organic revenue growth of 13% this year and operating free cash flow in excess of £3 million. As a standalone entity, Skymesh easily justifies a valuation above BigBlu’s market capitalization of £29.1m.
In addition, the group has net cash of 4.5 million pounds sterling (7.7 pa share), the stake in Quickline (12.5 pence) and the recovery of the Nordic business. Indeed, SkyMesh and BigBlu Norge are priced at £17.3m, five times their projected operating profit of £3.4m (after central overhead). A valuation of £42m (72p) or 12x operating profit is far closer to the mark, implying an overall valuation of 98p for the group, or 84% above the current share price of the BigBlu share.
Interestingly, the share price is back to March lows (47p) and is also massively oversold (14-day RSI of 12.3), having previously rallied from 58p to 78p after hedging annual results ( ‘A tech value game in the blue sky”, March 21, 2022). Once the dust settles and investors once again focus on the operational performance of SkyMesh and BigBlu Norge, expect the stock price to recover lost ground. To buy.
Simon Thompson was named Journalist of the Year at the 2022 Small Cap Awards.
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