NBN Contracts And Stocks Under Spotlight – TLS, SSM

What is NBN?

NBN stands for National Broadband Network, which is an Australia-wide plan is being sponsored by the Federal Government to provide a faster internet connection to home and businesses. NBN component consists of wired as well as radio communication. These components are being rolled out and operated by NBN Co Limited.

The key objective of NBN is to provide Aussies with fast broadband at an affordable price and at the least cost. Thus, to meet the objective, the structuring of NBN is done as a wholesale-only, open-access broadband network.

NBN is the company which rolls out, owns and maintains the nbn network. NBN Co has various NBN service providers. Amongst them, some of the top NBN providers include:

  • Telstra
  • Optus
  • TPG
  • iiNet
  • Internode
  • Aussie Broadband
  • Mate Communicate
  • Vodafone
  • Dodo
  • My Republic

Telstra Corporation Limited

Telstra Corporation Limited (ASX: TLS) is a company from the telecommunication industries, and it provides telecommunication and information services such as mobile, internet and pay television. Telstra is also the retail service provider. It provides services on the nbn network. It re-sells these services to its customers.

Telstra under the limelight:

TLS continues to remain under the spotlight since the release of its FY2019 results. The company in FY2019 made a strong progress on its T22 strategy in the first year. The company brought down the number of Consumer & Small Business plans to 20 from 1800. It also introduced no lock-in plans across fixed and mobile networks and eliminated additional data charges in Australia. The company also launched 5G services during the period. It also noted a drop in the calls to call centres by 22%.

The company’s Income, EBITDA and NPAT were as per the expectation. There was a fall in all these components during the period. EBITDA of the company was impacted by the nbn. The underlying EBITDA decreased ~4% apart from the in-year nbn headwind. The company’s EBITDA has been strongly impacted by the nbn since FY2019

The company updated its guidance for FY2020 where it expected its total revenue to be in the range of $25.3 billion to $27.3 billion, underlying EBITDA to be in the range of $7.4 billion to $7.9 billion, restructuring cost of ~ $300 million, capita; expenditure of $2.9 billion to $3.3 billion along with the free cash flow in the range of $3.3 billion to $3.8 billion after the payment of operating lease.

Further, on 30 August 2019, the company released an announcement where it highlighted that the company needs to review the impact of the changes to the nbn roll out after the release of NBN Co’s Corporate Plan 2020. NBN projected that there would be a fall in the total covered premises from 2 million to 1.5 million.

On 2 September 2019, the company provided its updated guidance for FY2020.

Stock Performance:

The shares of Telstra Corporation Limited have given a decent YTD return of 31.16%. The share opened at A$3.56, slightly below by A$0.01 from its last closing price. By the end of the trading session on 18 September 2019, the closing of the shares of TLS was A$ 3.550, down 0.56% as compared to its previous closing price. TLS has a market cap of A$42.46 billion, with 11.89 billion outstanding shares, an annual dividend yield of 2.8% and a PE ratio of 19.720X.

Service Stream Limited

Service Stream Limited (ASX: SSM) is a company from the telecommunication sector and it offers essential network services to the telecommunications as well as utility sectors. Its operation is in all the states and territories.

SSM in limelight:

Service Stream Limited has recently provided its investors with two recent updates. The first was its extension of the Operations and Maintenance Master Agreement with NBN Co for further 12 months duration to 21 December 2020 and the second is the release of the annual report for FY2019, period ended 30 June 2019.

  • Operations and Maintenance Master Agreement extension: SSM had entered into the Operations and Maintenance Master Agreement with NBN Co in December 2015 under which SSM was supposed to operations as well as maintenance field services for nbn. It includes service activations, service assurance and preventative maintenance events across the fixed-line multi-technology network of NBN.

On 17 September 2019, this agreement has further extended till December 2020. In FY2019, through this agreement, the company has generated revenue of around $275 million, and in FY2018, the revenue was $215 million.

Extension in the agreement represents the confidence which NBN has on the ability of Service Stream Ltd to support its national operations.

  • Annual Report: On 18 September 2019, SSM released its annual report. The company’s revenue increased by 35% to $852.178 million, EBITDA by 33% to $89.543 million, EBIT by 27% to $73.317 million and Net profit after tax by 21% to $49.859 million.

Increase in telecommunications revenue was due to revenues from the key business activities as detailed in the table below. The increase in revenue was related to customer connections and related services.

Telecommunication revenue was also the outcome of the customer connections along with the related services being performed for NBN Co under the several Activation & Assurance, Minor Projects and Design & Construction contracts. However, it got offset by a volume-related fall in fixed-line events for other clients as well as in Wireless operations.

On the other hand, revenue from the utilities segment was from the key business activities like Metering services, new energy, inspection services, Comdain Infrastructure. Below is the breakdown.

The operating cashflow declined by 25% to $59.523 million. There was a significant decline in the net cash by 86% to $10.521 million. EPS increased by 16% to 13.09 cents per share and dividend by 20% to 9 cents per share.

Stock Performance:

The shares of Service Stream Limited have given a decent YTD return of 52.44%. The share opened at A$2.640, slightly below by A$0.02 from its last closing price. By the end of the trading session on 18 September 2019, the closing of the shares of SSM was A$2.600, down by 2.256% as compared to its previous closing price. SSM has a market cap of A$1.08 billion, with 406.97 million outstanding shares, an annual dividend yield of 3.38% and a PE ratio of 20.320X.


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