Superloop (ASX:SLC) is pleased to announce it has been awarded a major, multi-year contract with Symbio (MNF Group Limited) (ASX:MNF) to become its exclusive supplier of wholesale nbn aggregation services. The contract, signed today, has an expected value in excess of $25m and is Superloop’s largest single contract win to date. Under the contract, Symbio will migrate its existing and future supply arrangements from various providers of nbn aggregation services onto the Superloop Connect platform. The contract also anticipates Superloop expanding its existing use of Symbio’s range of voice offerings and including elements within its own portfolio of offerings.
Superloop’s nbn aggregation services are delivered on its recently launched, in-house developed Superloop Connect platform. Superloop Connect is a frictionless, API driven platform that allows customers of any size to access Superloop’s market leading nbn backhaul and virtual nni capabilities in a cost competitive way. These capabilities have been deployed nationwide, allowing Superloop’s customers a completely digital mechanism to order, provision and assure nbn business and consumer services anywhere on nbn’s fixed line and wireless footprint, with delivery of those services to any of the mainstream data centres in Australia. The Superloop Connect platform will continue to be developed in the future enabling further products and services from its APAC and Global offerings to be available via the platform.
Disc: I hold MNF & have previously held SLC
Superloop has had a checked past. It was founded in 2014 by Bevan Slattery. He was essentially trying to recreate the success of his first business hit, PIPE Networks. This time it wasn't just fibre connectivity for Australia, but spanning the wider and booming Asia Pacific region.
In time the company built out fibre connectivity in Australia, Singapore and Hong Kong. In order to leverage the demand of the underlying infrastructure, management went on an acquisition spree of companies that required fibre connectivity - an attempt at vertical integration if you will. This included companies involved with fixed wireless broadband, guest wifi (e.g. uni accomodation internet), professional film network solutions and managed services. They also expanded into a few areas more organically, including retail NBN broadband. More on this later.
In short, all the non-core businesses only just muddled along. And the core fibre business in Australia, Singapore and Hong Kong remained largely under-utilised. The company IPO-ed in 2015 at $1, popped on open at quickly ran to $3. Today it's back to where it began, highlighting the lack of success the company has experienced over that time span.
There are 3 things why this might be worth another look.
One. New CEO.
Paul Tyler, former C-level at the NBN responsible for enterprise and government customers, joined in October 2020 with a key focus on addressing the company's biggest need - sell fibre capacity to enterprise level clients. He's well incentivised to make it a success having been issued with 250k options with an exercise price of $1.11 and another 1m options at $2.00.
Mr Slattery has announced his plans to build the grandest private fibre backbone in Australia's history - labelled HyperOne (https://www.itnews.com.au/news/hyperone-to-deploy-15bn-20000km-fibre-backbone-across-australia-560909). Being a 17.5% Founder/Chairman of Superloop, one shouldn't rule out corporate action in this space with regard to SLC's Australian fibre assets. The observant may have noticed HyperOne borrowed the same graphics template and colour palette as well.
Three. Superloop NBN.
The Superloop NBN business only launched a mere 2 years ago and is gaining traction rapidly. Aussie Broadband is a good comparison - they're essentially after the same target market of premium, tech-savvy users. ABB currently trades at a 5.5x gross profit multiple. If this was applied to SLC's NBN business it would be valued at around $80m on FY21e numbers.
As a Superloop NBN customer, I've been tracking invoices as a proxy for subscriber numbers (https://twitter.com/mushroompanda/status/1346975330347610114?s=21). I have them ending 1H FY21 at 40k subscribers, with around 44k subscribers currently in mid-late Feb. Not too far off a 100% yoy growth rate. SLC NBN is currently growing faster than ABB, albeit off a smaller base.
The traction in the NBN space could really change the investment narrative for Superloop. Especially if confidence develops that it can follow the same trajectory of Aussie Broadband and continue to take share off the sleepy majors. Should they continue to execute, and grow to ABB's size in 3-4 years - one could make the case of getting all the other divisions (fibre, guest wifi, fixed wireless, etc) for free at the current share price.
Note: I've attached a table detailing the market share in the NBN retail space. Yellow cells are guestimates. Numbers could be wrong, please DYOR. Sourced from ACCC, ABB and SLC reports, and my own projections.
1H FY21 Results on the 23rd Feb
I'm looking out for 3 key things:
SLC - setting up for MA50 / MA200 crossover
It could be that next week's Half Yearly results if they are upbeat, could set up for the SLC share price to switch over into an uptrend by my analysis:
Now I dont usually decide on TA alone, but rather where there's an FA reason to make a decision to take or hold a position, it is always nice where TA is forming to confirm that same view.
So the FA aligned reasons:
This is one I'm looking forward to and have a calendar reminder for the conference call on next Tuesday the 23rd of Feb
But of course should the SLC share price also throw a TA signal then that'll invariably get onto more people's stock screener filters too, or at least be one more tick into their trading strategy.
SLC - recent article about HyperOne - Bevan Slattery
ok this is relvant to SLC in so much as here's another fresh idea from Bevan, who has already registered the company according to the article.
The concept is an "Exclusively for large Companies Domestic Fibre Network" connecting all the main cities in Australia, so a dedicated network free from the impacts of non relevant data users.
It stands to reason that if this is built and can attract Tier 1 businesses here in Australia to prioritise their inter-city data transfer before it gets delivered out via the public NBNs then similarly there would be scope to have that same dedicated network as a cutomer of Superloop's INDIGO inter-continental network.
Unfortunately this is only a partial of the article, but Superloop is mentioned not explicityly but by inference as the "under sea fibre network"
SLC - prior $500m takeover bid from QIC 2019
"Board unable to agree to a transaction"
one for the archives here, that previoulsy Superloop recived a $1.95 per share take over bid during 2019.
As is my recollection and referred to here, the Board of Superloop at the time did not agree to the takeover offer.
so we have:
that the Board effectively did not agree that $1.95 per share was the value to accept the offer for.
Were they correct or incorrect in hidsight ? only time will tell.
But as I've posted in my Top20 review, nearly everyone since this time has increased the number of shares they hold.
My takeout from this is that at the time the Board saw the company as having a greater future value than the $1.95 per share in hand represented in May 2019.
At the moment with a Share Price of $1.00 with the extra 44% of issued shares, I'm tipping towards the Board as having good insight and look forward to the upcoming Half Yearly results on the 23rd of Feb 2020.
SLC - getting to know the Top 20
I've just done the YoY comparison of Top20 for Superloop and am pretty pleased with what it shows (refer the image below)
In addtion to the Annual Reports, I referenced SimplyWall.st too, for some snippets around insider transactions and validated those back to ASX announcements.
Of course being a tech company that was founded by Bevan Slattery is always going to atract an interesting Top20, but here's the main points:
The Top 20 have increased their level of ownership to 62.18% up from 47.3% in 2019
Since the annual accounts
All in all, this is quite interesting and well supported by smart money.
By all means DYOR and validations
disclosure: I have been buying the dips in my Super account for some time now
SLC has had a few tough years, but finally gaining good traction, the current team has worked well together to secure stock holders investment. Half yearly results to be released Tuesday, 23 February 2021. Singapore business doing well, Hong Kong business has been below expectations and will be watched closely. I am very positive for SLC at the current stock price in 2021 taking advantage of the Covid situation and work from home programs, and the increase traffic across the network.
Superloop Annual Report 2020 - Cash Flow Statement
good to see a reduction of debt, an increase in Operating cash flow and to an extent a decrease in cash sourced from Financing.
FY2021 it will be interesting to note whether the borrowings are heavily relied upon (drawn down beyond the extent of repayments) or whether the scale up of the Core sales bumps up the Operating Cash Flow enough to ease that reliance on borrowings. from a health of balance sheet perspective.
However borrowings are very cheap at this point in time and a smart use of borrowed funds would be prudent if channelled directly into scaling growth.
Superloop Financial Performance 2020 Annual Accounts
Despite the impacts of COVID durign the FY2020 perrormance year, Superloop managed to post a +$5m improvement in EBITDA
EBITDA: 2020 $13.47m v 2019 $8.5m up $5m
Revenue: 2020 $107.5m v 2019 $119.8m down $12m
OpEx: 2020 $94.1m v 2019 $111.3m down $17m
So in a year that had challenges with COVID and isolation, the company has pro-actively managed its Operating Expenditure in a greater magnitude than the impact of downturn in Earnings, so as to yield a $5m improvement in EBITDA
When coupled with the Half Yearly FY2021H1 guidance notes where Core sales of fibre network revenue is being targeted for 100% YoY growth, this prudence over cost control in the face of adversity bears very well for a positive result as the business can hopefully execute their scale up.
Feb 23rd 2021 is the presentation date of the FY2021H1 results, investors can dial into the presentation if they pre-book the intention to.
The Board of Superloop consists of a number of incumbents with very broad experience including other Directorships. Recently commenced CEO Paul Tyler is also an Executive Board Member.
Each Board member has reasonable skin in the game in the vicinity of around $100K and upwards of interest in the company's stock (most if not all being fully paid ordinary shares)
This is a positive situation IMO as they're much more than simply attending Board Meetings to provide expertise and governance, as they have a vested interest in their decisions being good ones that have a positive impact upon the share price.
Also of particular interest is a statement in the Annual Report whereby non-Executive Board Members are precluded from particpating in Performance Linked Incentive Plans, this exclusion seen as a mechanism to ensure a degree of impartiality in their roles as Board members.
Bevan Slattery remains at the helm as Non-Executive Chairman, with a very significant holding.
Superloop is a company founded by Bevan Slattery in 2014
Bevan Slattery who recently invested in dream stock RNT (rent.com.au) remains as one of the largest shareholders in the Top 20 with a holding valued at over $60m
Superloop has built high speed fibre optic inter-continental cable network connecting Australia to Europe, Asia and North America as shown in the diagram below.
Domestically the Superloop network has been built out in the same loop design (hence the name suggests Superloop) that provides redundancy over the high speed connectivity for domestic NBN customers
Superloop will announce its FY21H1 results to the market on 23rd Feb 2021 via a conference call that investors can join into (Feb 2021 announcmeent has details)
Bevan Slattery remains involved in the company and is non-Executive Chairman
Long time holder,hopeful sign with Bevan doing a small for him anyway buy on market.
I view telcommunications as an essential service. Superloop owns and operates an extensive Fibre network in the APAC region. Previous write up detail the poor management execution up until this point under the previous CEO - which includes poor acqusitions which I totally agree with. Now that Superloop is getting back to what they know (connectivity) things are heading in the right direction. They were cash flow postive in Q1 (albiet with the help of Job keeper/4 day weeks for employees) and all core areas of the business are improving.
The HBB segement is growing nicely and has become the default "premium provider" over crowd favourite Aussie Broadband after having some teething issues earlier in the year with Cisco Bugs on their BNG (border network gateway) devices + terrible customer service. SLC has a tiny market share still and their margins (40% blended on entire HBB segment) is far higher than other niche NBN providers (outside of Vocus, Optus, Telstra). This allows them to have a premium product whilst not having razor thin margins to keep their customers happy by saving a large amount of money by having their own backhaul to NBN's POiS.
Their core business is fibre connectivity. Sales have been moving in the right direction but more work needs to be done here. They have made a huge investment in Hong Kong which doesn't look like it will paying itself off anytime soon (for now), but Singapore and Australia seem to be growing nicely.
I've been negative on SLC for a couple of years, particularly since Drew Kelton took over as CEO in July 2018, after Bevan Slattery stepped back into a more "strategic" role, rather than being a frontline manager. After listening in on an analyst/investor briefing soon after Drew took on the top job, I soon formed the opinion that he was likely to be more of a liability to SLC than an asset. After threatening to not pay for the teleconference bill after some technical issues, he got annoyed with a couple of the analysts suggesting that they were asking him to to do their job - i.e. providing opinions and forecasts for the company. It struck me as a perverse way to try to garner interest and approval for what was still a fledgling company trying to get on more people's radars. I was also concerned about a number of key personnel leaving the company around the same time, which suggested to me there was more going on than we knew, and that it wasn't all good. At the time I was sitting on a decent profit with my SLC position, so I sold and locked in that profit.
I sold my SLC shares for $2.45/share on July 2nd 2018, the day after Drew Kelton took on the CEO job. They then drifted South East for the next 18 months, to end up at 87c/share (-64%), and then they got coronered down to a 52 cps low on March 23rd. They're back up to $1.22 now - well, they were yesterday, they are down about -7% today on this report - and currently trading at $1.13 to $1.14, less than half of what I sold them for.
Interestingly, they announced on 12th August (12 days ago) that they have appointed a new CEO, Paul Tyler, who comes to Superloop with more than 25 years’ experience in senior leadership roles, most recently as Chief Customer Officer of NBN Co Ltd (“NBN”) responsible for scaling its aspirations in the business, enterprise and government markets, and previously as Group Managing Director, Telstra of both its international business and mid-market segment (Telstra Business). Prior to this, Mr Tyler was President, Asia Pacific and Japan, Nokia responsible for leading Nokia’s businesses across the Asia Pacific region.
On the 12th, Superloop Non-Executive Chairman, Bevan Slattery said, “I am delighted to have secured Paul as CEO. He is uniquely positioned to understand the challenges and opportunities that the National Broadband Network offers enterprises and service providers looking to leverage this once in a lifetime opportunity to transition away from traditional networks.”
Commenting on his appointment as CEO, Mr Tyler said: “I look forward to working with the fantastic team at Superloop to further grow the business, leverage its significant core assets and capabilities, and continue to build on the technical leadership that the Company has become renowned for. With the unstoppable rise of the cloud, software defined wide area networking (“SDWAN”) and of course the NBN, the business market is experiencing a once in a generation disruption that Superloop is uniquely positioned to take advantage of. For the first time, the internet has enabled all businesses from the smallest to the largest to access the productivity improvements that enterprise grade applications enable – Superloop is set to be a strong catalyst of this change.”
Mr Kelton will commence an orderly handover process with Mr Tyler on 1 September, with the CEO change taking effect from 1 October 2020. Mr Kelton will stay on as an Executive Director until March 2021, to focus on Superloop’s international business, and then transition to a Non-Executive Director role thereafter.
That's a positive in my book. And they've reduced their spending. And their debt has reduced. And their EBITDA was up +58% on the pcp, albeit off a very low base - FY20 EBITDA of $13.5 million compared to $8.5 million in FY19. I guess it's not too hard to get a good percentage uplift when your pcp figure was just $8.5m - from revenue of $120m.
However there are still some negatives. Such as: Ordinary Revenue was down -9%. Total Revenue was down -10%. And they are still NOT profitable. They are moving in the right direction - their loss for FY20 was ~$41m vs. ~$72m (loss) in FY19, but they don't look to be at or near a positive inflection point yet. And - their Net Tangible Assets (NTA) per ordinary share was $0.43 at 30-Jun-2020, down 1c from the $0.44 NTA they had on 30-Jun-2019.
I think SLC have built up a useful suite of assets, particularly their undersea cables and their cable networks in various Australian and Asian cities, however, I remain of the view that the best outcome for shareholders is probably for them to be taken out by a larger player for a decent premium. Which certainly is one possible outcome. I would rate that as a better than 50% chance actually. However, SLC serves as a useful example that not everything that Bevan Slattery touches necessarily turns to gold, and not every company that Slattery is a substantial shareholder in will prove to be a good investment. If you got into SLC in August 2016 when they were $2.90 or any time in 2017 when they were always above $2.20, then a takeover now would be unlikely to deliver you a profit on your SLC investment, even if the takeover was at a 50% premium to the current sub-$1.20 SP. And Slattery still owns 24% of SLC.
Contrast that with Megaport - MP1 - which has shot the lights out. Slattery has now reduced his position in MP1 down to just 8.5% (latest sell-down was from 12.5% to 8.5% on May 21st this year). I think Slattery might agree with me that MP1 is looking quite expensive at current levels - he was selling down (taking profits) at $13.05 to $13.80 (in that range) and MP1 are now $16.90/share as I type this (up another +6.6% today so far).
Slattery would probably argue that there is more value in SLC, and I would agree with that. Hence - he still owns 24% of SLC. I think that most of the bad news - and the major spending - is likely to be behind Superloop now, and they might be worth taking a small to moderate position in again, but I may wait a bit longer, to see how the new guy (Paul Tyler) works out for them. He doesn't officially take over until October.
Superloop has announced some management changes this year, starting on 26-Mar-18 with the appointment of Drew Kelton as their new CEO (see here), with SLC founder Bevan Slattery stepping back into an executive director role, "allowing him to focus on strategic priorities for Superloop".
Drew has plenty of global Telco experience, but he comes across as a hard-headed northern Englishman who likes to stamp his authority. In one particular conference call I listened in on, he was clearly disgusted with the issues that the conferencing services provider was having and joked that Superloop would NOT be paying their conferencing bill. He has a dry sense of humour (if he has one at all) so it just came across more as a threat than a joke. He was also a little terse with some of the analysts, at one point claiming that one analyst was trying to get Drew to do his (the analyst's) job for him, because of the nature of one of the questions, the inference being that SLC would give them some details but it was the analysts' job to put all the pieces together and to form their own views on the company and its future outlook. This was not something I'm used to hearing, as most CEOs (especially the ones running the smaller companies) are very keen to paint their company in the best possible light and never shy away from expanding on future opportunities and where they see company being in the future. Drew has a more combative approach.
Anyway, that was followed - on 04-Apr-18 - by this Investor Strategy Briefing Presentation, then the SkyMesh Fixed Line Customer Base acquisition on 12-Jun-18 - see here - and then a 02-Jul-18 Company Update - see here - which was full of news. It started by reminding us of their new CEO, Drew Kelton, and said that Bevan Slattery's new Executive Director role would allow him to "focus on strategic priorities and to lead the Company’s innovative approach to technology and systems."
Next was updates on the Indigo Cable System manufacturing, Southern Cross Cables capacity upgrade, NBN Integration news and their Superbb rollout. They also snuck in the news that Jason Ashton, the co-founder of BigAir (aquired by SLC) had for personal reasons decided to step down from his executive role but would continue as a director and consultant with particular focus on NBN integration. On 01-Oct-18 SLC announced that Jason had quit the SLC board as well, effective from the previous day.
Matt Hollis was also jumping ship [continued - next straw]
01-Jul-19. While FY20 got off to a reasonable start today - for most ASX-listed companies, there were exceptions, and two of those were Adacel Technologies (ADA) who dropped a bee's whisker below 32% on an FY19 guidance downgrade that left us in no doubt that they have very sub-par management there (their guidance is now for a FY19 loss) - and Superloop (SLC) who had an interesting FY19 Earnings Guidance "Update" of their own:
Superloop Announces Updated FY2019 Earnings Guidance
Superloop Limited (ASX: SLC) (Company) refers to its “H1FY19 Investor Presentation” (Presentation) which was released to the market on 25 February 2019 and included guidance for the 2019 financial year of statutory EBITDA of between $13 million and $18 million. This guidance was predicated on a number of factors, including that certain transactions were expected to complete and be recognised this financial year.
Despite its expectations to do so, the Company has not completed negotiations before 30 June 2019 to secure a significant commercial agreement which would have contributed the anticipated EBITDA to achieve its guidance for this financial year. Accordingly, the expected EBITDA for FY2019 is now likely to be lower than that set out in the Presentation, and subject to the finalisation of June’s trading figures and completion of its audited full year results, in the range of approximately $7 million to $8 million (including approximately $1 million of restructuring costs from February 2019).
Negotiations with parties will continue and if successfully concluded will be reflected in future earnings.
The Company notes that throughout the financial year it has continued, and expects to continue, to monetise its extensive Asia Pacific assets in a number of ways including long term indefeasible rights of use agreements, whereby the cash is often received upfront, but revenue recognised over the life of the contract. In addition, the Company has also reduced a minority equity stake it held in a non-core asset which further strengthens its balance sheet.
With respect to the Company’s secured debt facility, the Company advises that it has actively engaged with its lenders to ensure that its revised guidance is within the terms of the debt agreements.
The Company anticipates releasing its full year results for FY2019 in the week commencing 26 August 2019 and will continue to keep the market informed with any further developments in accordance with its continuous disclosure obligations.
--- ends ---
Disclosure: I don't hold SLC shares - as explained in my 3 "Bear Case" straws and also in my "Risks" straw. Too many red flags, including a number of key personnel leaving the company throughout 2018, the founder (Bevan Slattery) stepping back from the controls, and the new CEO/MD, Drew Kelton, being a bit of a prick.
They also increased their debt profile last year (took on 50% more debt), and without the expected profits to service and reduce that debt, they now have to worry about the possibility of breaching lending covenants (which would be included in those "debt agreements" that SLC refer to in this "update"). They may not have breached any yet, but it does highlight how easily you can lose control of your own destiny when you're a relatively small company and have significant debt.
In closing, does this ring true to you? They were unable to close the deal on one significant commercial agreement before June 30th, and as a result of that, they have gone from guidance of statutory EBITDA of between $13 million and $18 million to now being $7 million to $8 million (including approximately $1 million of restructuring costs from February 2019). Really?? That must have been a VERY significant agreement, because that profit guidance has just halved!
I would suggest that what ADA and SLC currently have in common is management that you just can't trust. I'm not saying they're incompetent, although that is probably a strong possibility. What I'm saying is that when they promise something, or provide guidance, you just can't trust them. And it's often best to avoid companies that are in a downgrade cycle. There are often at least three consecutive downgrades before the tide turns positive, and that's IF the tide does turn. It sometimes doesn't.
Additional: That's why I tend to sell out immediately when a management team does anything that makes me think I can't trust them any more. It happened with Dacian Gold (DCN) last month, a massive production guidance downgrade for both the June quarter & for FY20; I sold out immediately - at $1, where they opened when they resumed trading after the downgrade. They finished that day down 67% at 51.5 cents. In a further omen, and an ominous one, DCN fell 66.6% in June on the back of that downgrade.
Today (Tues 2nd July 2019) we have another big earnings guidance downgrade - this time from SDA - Speedcast International (see here) and they finished at $2.06 - down -40.8% from their $3.48 close yesterday.