Simon Thompson has updated and concludes.....
Analysts’ sum-of-the-parts valuation of £24.7mn (42p) consists of slightly lower cash proceeds from the SkyMesh disposal (£14.9mn revised from £15.4mn due to currency movements) less higher than expected debt repayments (£6.6mn up from £5mn due to working capital adjustments); transaction costs (£1.2mn); retained stake in the Australian business (£6.5mn); deferred contingent SkyMesh cash payment due in December 2025 (£3.5mn); investment in Quickline (£5.9mn), a company that is building fixed wireless access networks to address the ‘UK digital divide’; and retained operations (£1.8mn). Tender your shares. |
Yes, sounds like a plan. |
Good news, though it's certainly taken a while.
I guess the usual tactic applies - tender the lot and see how many are matched??? |
40p tender offer. |
A few days ago ST was suggesting a doubling of value - oops :)
If they are turning themselves into a telco investment trust, then the board needs slimming down now. I thought they were trying to off load the lot and give money back to shareholders, but now hold minority stakes in two private cos, and holdings in two very small companies. |
njb67
I am still a little confused about the Revolving Credit Facility (RCF).
BBB's interim report showed debts of about £5 million and this is the figure (more or less)that the Investors Chronicle seems to been using in its calculation of the asset value.
The report mentions interest paid on the RCF but l cannot find any other reference to it. |
 Simon T has updated fwiw under the heading...
BigBlu’s subsidary sale highlights deep value.
concluding with....
On a sum-of-the-parts (SOTP) basis, house broker Cavendish values the equity at £28.6mn (48p) as follows: £3mn for ongoing operations (a trading subsidiary in New Zealand and a business that controls the distribution of Starlink); retained SkyMesh stake (£6.8mn); investment in Quickline (£5.9mn), a company that is building fixed wireless access networks to address the ‘UK digital divide’; proceeds from the disposal of SkyMesh (£15.4mn) less debt repayments (£5mn), transaction costs (£1mn) and receivable adjustments; and deferred SkyMesh cash payment (£3.5mn).
Admittedly, Cavendish’s revised SOTP valuations is below their 70p target price prior to BigBlu entering discussions with Salter Brothers. However, it still implies a 37 per cent share price upside, which is underpinned by the proposed cash distribution (equating to almost half the current share price), retained stakes in Quickline and SKM and the deferred cash consideration due in 12 months. The carrying valuation of the Quickline stake also looks conservative given the operational progress that the company has been making. Buy. |
njb67
Thank you very much for your prompt response..
The relevant sentence is indeed ambiguous : "The Completion Payment after transaction fees of £14.35 million will be used to pay down the RCF".
On reflection l think that your interpretation must be correct. Let us hope so.
It would be interesting to see a Pro-Forma balance sheet and l hope that BBB will produce one with the formal notice to shareholders. |
I have read transaction fees as the difference between the £15.35m initial price mentioned earlier and the circa £14.35m that will be used to pay down debt. So the fees are around £1m (which seems about right for a deal of this size) rather than £14.35m.
It is poorly worded imv. |
There are "transaction fees" of £14.35 million.
I see no explanation of these and would be grateful if some kind person here could offer one. |
IC had a valuation of £29-36m for Skymesh based on 8-10x cash profits, with potential upside as most recent results were temporarily depressed.
The offer of initial £15m rising to max £25m is someway below what IC had predicted, so may have led to selling this morning. |
A bit of both probably but still a hold for me. Time will tell. Some may have had overly high expectations. |
And we're DOWN on the news of course!? :-(
So what's the problem - too cheap / complicated? |
Skymesh part announced. |
It's looked like a wind down for quite a while so return of cash probably most likely. |
I wonder what they would do with the rump, which would be a huge cash pile and the stake in Quickline? A return of capital to shareholders seems likely if the deal goes through. |
Simon T has updated with...
These shares could double your money in double-quick time.
- BigBlu in talks to sell Australian subsidiary SkyMesh
- Disposal could realise double the current share price
- Sum-of-the-parts valuation of 70p a share
Aim-traded alternative broadband services provider Bigblu Broadband (BBB:30.5p) has announced that it is in discussions with Melbourne-based fund management and advisory firm Salter Brothers regarding a potential transaction involving its Australian subsidiary, SkyMesh.
The deal remains subject to final terms and financing arrangements, and there can be no certainty that any transaction will be completed, but I would be surprised if it doesn’t as BigBlu is in the process of realising value and maximising returns for shareholders from its operating assets. SkyMesh is firmly in play.
Although SkyMesh’s cash profits have been under pressure, falling from £2.2mn to £1.7mn (pre-central overheads) in the six months to 31 May 2024 and are forecast by analysts to fall from £5.2mn to £3.6mn in the 12 months to 30 November 2024, Bigblu’s house broker, Cavendish, expects a 25 per cent profit recovery in the 2024-25 financial year as margin rebuilds. The optimism is warranted.
That’s because SkyMesh has been working closely with its major satellite provider, NBN Co, to bring more affordable uncapped data packages to market, having seen churn rates rise due to competition from Starlink, a wholly-owned subsidiary of American aerospace company SpaceX. SkyMesh has also secured a distribution package with Starlink to provide high-speed internet to businesses and small office customers in Australia. Combined with reseller agreements with Optus for 4G/5G fixed wireless (launched in July 2024), Vocus for fibre and OneWeb, SkyMesh has doubled its total addressable market to more than 2mn potential customers. It is an attractive acquisition target and one that provides potential for shareholders in BigBlu to double their money.
Material valuation upside
To put the potential valuation upside into perspective, telco peers are rated on a multiple of 8-10 times cash profit, implying a valuation range of £29mn-£36mn (49p to 61p) for SkyMesh as a standalone entity based on the subsidiary’s depressed earnings for the current financial year. At the top of that valuation range, the subsidiary is worth double Bigblu’s current market capitalisation of £18mn. There could even be valuation upside, too, given that SkyMesh has the building blocks in place to materially improve profitability in the 2024-25 financial year.
Moreover, BigBlu's £6mn (10p) stake in Quickline, a company that is building fixed wireless access networks to address the ‘UK digital divide’, looks conservatively valued and more than covers group net debt of £4.9mn (8.4p).
Prior to BigBlu entering discussions with Salter Brothers, Cavendish had a sum-of-the-parts derived target price of 70p a share. That’s more than double BigBlu’s current share price and in line with my own financial models, too.
So, having advised holding onto your shares, at 28p, when I covered the interim results (‘Investors could double their money with this break-up’, 2 September 2024), the potential to more than double your money on a break-up of BigBlu makes the shares worth buying. |
This is the news story - it reports possible full sale of Skymesh to Salter's Bros. "Salter Brothers’s technology fund is set to make a big bet on regional Australia, honing in on a Brisbane-based telecommunication reseller which is forecast to throw off annual revenue of more than $75 million.
Street Talk understands the Melbourne-based fund (SBTF), managed by Gregg Taylor, has entered into exclusive terms for a 100 per cent acquisition of Bigblu Broadband’s SkyMesh which provides satellite and fixed wireless..." |
Let's hope the deal comes through, could be double current price according to ST. |
About time! |
Write-up by Simon Thompson.
FWIW, I decided to hang on to the ones I have - but wasn't feeling courageous enough to average down; will let it play out. Here's the article:
---
Investors could double their money with this break-up
An alternative broadband services provider has reined in guidance, but could this be the bottom?
Aim-traded alternative broadband services provider Bigblu Broadband (BBB:28p) has released a mixed set of interim results.
In May 2024, the group exited its Nordic business for a nominal sum, albeit the buyer assumed £1.3mn of net working capital creditors and liabilities and there is a contingent earn-out agreement. The disposal led to a £0.73mn below-the-line loss on discontinued operations.
In addition, BigBlu incurred £1mn of exceptional charges relating to corporate activity, restructuring and the write-off of some development costs on a new fully integrated cloud-based Microsoft IT system for its Australian subsidiary, SkyMesh. The reported pre-tax loss of £2mn also included a £0.15mn foreign exchange currency hit. Adjust for these items and the group just about operated at break-even at the pre-tax level.
Building a platform for SkyMesh to grow
As previously reported, competition from Starlink, a wholly-owned subsidiary of American aerospace company SpaceX, has impacted SkyMesh's churn rates.
In the six months to 31 May 2024, SkyMesh reported an underlying annualised churn rate of 32 per cent and only increased its customer base by 700 to 52,300 customers. So, to boost customer retention rates, SkyMesh has been working closely with its major satellite provider, NBN Co, to bring more affordable uncapped data packages to market. It’s working as a quarter of the customer base has now migrated to new deals, but it has led to lower average revenue per user, which impacts the gross margin SkyMesh earns.
Sensibly, SkyMesh secured a distribution package with Starlink in December 2023 to provide high-speed internet to businesses and small office customers in Australia. BigBlu invested £2.1mn in Starlink stock to support future orders as it looks to scale this side of the business. Combined with reseller agreements with Optus for 4G/5G fixed wireless (launched in July 2024), Vocus for fibre and OneWeb, SkyMesh has doubled its total addressable market to more than 2mn potential customers.
However, SkyMesh’s cash profits have been under pressure, falling from £2.2mn to £1.7mn (pre-central overheads of £0.6mn) in the latest six-month period. This explains why house broker Cavendish cut its full-year group cash profit estimate by 25 per cent to £3mn and now expects adjusted pre-tax profit of £2mn and earnings per share (EPS) of 2.8p, down from £3.6mn and 7.1p, in 2023. Also, BigBlu’s net debt has risen sharply from £0.3mn to £4.9mn due to the hefty investment in working capital and IT systems as well as the cash cost of the one-off charges.
Share price at a nadir?
The positive for shareholders is that the Australian business is now positioned to deliver growth. Cavendish's downgraded forecasts still point to SkyMesh’s annual cash profit rising 25 per cent to £4.5mn in the next financial year, an outcome that should drive pre-tax profit and earnings per share (EPS) up two-thirds to £3.2mn and 4.6p.
BigBlu’s directors are also committed to maximising shareholder value, either through an IPO, trade sale, management buyout or private equity transaction of the business. It would undoubtedly release value as SkyMesh is in the price for only £15mn (25.6p) on a sum-of-the-parts basis, or 4.2 times depressed current-year cash profit estimates and only 3.3 times 2025 forecasts. Telco peers are rated on a multiple of 8-10 times cash profit. I have taken account of group net debt of £4.9mn (8.4p) and BigBlu's £6mn (10p) stake in Quickline, a company that is building fixed wireless access networks to address the ‘UK digital divide’, in my calculations.
So, although BigBlu’s share price has fallen from 38.5p since I rated the shares a hold (‘Bigblu disappoints, but a break-up is highly likely 20 May 2024), the potential to more than double your money on a break-up makes them worth holding onto. Hold. |
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