On Thursday, Jefferies analyst John Campbell raised the rating for Aussie Broadband (ABB (ST:ABB):AU) from Hold to Buy and increased the price target to AUD4.40, up from the previous target of AUD3.85. Campbell’s assessment indicates a positive outlook for the telecommunications sector in Australia, noting that the conditions seem favorable.
He mentioned that residential gross profit margins are improving due to price increases, and Aussie Broadband is experiencing significant subscriber growth in both residential and enterprise & government segments. However, the small and medium-sized enterprise (SME) sector is still not performing as well, but there is optimism that it will improve as the company’s brand gains wider recognition.
Campbell has factored in several key elements to justify the upgraded rating and price target. He has increased the expected subscriber numbers by approximately 5%, included the proceeds from the sale of Aussie Broadband’s stake in the Southern Cross Cable Network (SLC), and incorporated the assumption of a 15 million share buyback in the fiscal year 2025. These adjustments have led to an estimated uplift in the earnings per share (EPS) for the fiscal years 2025 to 2027 by around 8%.
The analyst’s comments provide insight into the reasoning behind the upgrade: "Aust Telco conditions appear benign. Channel checks suggest Resi GP mgns are improving with price increases and ABB’s driving good subs growth across Resi & E&G (SME remains a laggard, but we’re hopeful this will start to ramp-up as ABB’s brand becomes increasingly ubiquitous). We’ve upgraded subs # by ~5%, included the SLC sale and assumed a 15m share buyback in FY25. This sees FY25-27 EPSA u/g of ~8%. New PT A $4.40 (A$3.85)."
Aussie Broadband, a provider of internet services in Australia, is expected to benefit from these developments as reflected in the revised price target and rating upgrade by Jefferies. The company’s strategic moves and the positive market conditions are likely to play a significant role in its financial performance in the coming years.
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