AYS - Budget Online-led Mobile Services Providers (SOLD)


GENERAL THOUGHTS

  • A discount model by offering dirt cheap budget services. Low-cost phone providers are having a lot of success attracting customers with their big data plans.

  • The satisfaction of the top five Mobile service providers, with Amaysim the leader on 81.6%, followed by Optus 79.0%, Virgin 78.4%, Telstra 76.3% and Vodafone 76.0%.

  • Amaysim has the lowest number of complaints in the telco industry, is highly recommended and has a high loyalty rate.

  • High yield:

  • 6.54% (stockoedia);

  • 4.59% (SW);

  • Undervalued:

  • $3.31 (SimplyWall)

  • $3.33 (ValueFrog-WB)

  • $8.30 (ValueFrog-Ben)

  • $4.47 (Stockopedia-Ben)

  • Excellent Earning Growth:

  • 32% Earning growth rate (Vectorvest)

  • 260% over 3 years (SimplyWall)

  • Excellent Sales Growth:

  • 39% Earning growth rate (Vectorvest)

  • High score on the StockOmeter: 78 which is based on its very high ROE and high yield

  • Massive ROE next year of 61.3% which is set to rise in the coming years at a stable pace.

  • Mobile subscribers CAGR (FY12-17) = +36%

  • Gross Profit CAGR (FY12-17) = +70%

  • Is one of Australia’s online-led Mobile Services Providers with some 1.074m subscribers driven by mobile users who don’t want to be locked into contracts. Focus is on the budget market and it’s doing incredibly well servicing this sector.

OUTLOOK

TRADING PLAN​

  • Position Size Portfolio Equity = 100k

  • Risk = 0.5%

  • ATR Multiple = 2

  • Recommended Quantity = 7,300 shares

  • Initial Buy = 5,000 shares @ 2.01

  • Target: $5.00

  • Stop: $1.82

  • Sold @ 1.998

  • Reasons: Technical signals (TTS, Foundation, ADX+DMI,), want more Cash reserve, more Concentrated porfolio with strong stocks i.e. LOV, VHT, A2M

ANALYSIS

STRENGTHS

  • The likes of Amaysim, Kogan, Aldi, Vaya and Ovo have all gone the discount model by offering dirt cheap budget NBN and mobile plans to win over customers. It’s a smart move when everyone is offering a smilar service but at a higher price

  • Key assets allow AYS to create products & services customers want.

  • Empowering customers to better manage their household services

  • Its recent profit results were impressive. The company posted an FY underlying earnings rise of 22.9% $43.5m. NPAT came in at $11.5m

WEAKNESS

OPPORTUNITY

  • Plans are very competitive in comparison to Telstra and Vodafone. The company has also entered the NBN race and is offering a cheap and unlimited plan to undercut Telstra and other majors. Early results from the NBN sign-ups show that Amaysim is scoring an above industry average rate of new customers to higher tier plans.

  • The Australian NBN market is ripe for disruption from budget carries such as Amaysim who will continue to steal market share from Telstra and Vodafone.

  • The company is adding Energy into the mix by acquiring Click Energy for $120m. It’s a highly strategic opportunity to offer the full suite of products of a household. Click offers electricity services throughout the country with some 155,000 customers.

THREATS

  • Amaysim and Click’s business models generate a lot of revenue, but profit margins are necessarily thin and vulnerable to negotiations with suppliers (energy and phone companies) as well as other disruptions

RISKS

  • Poor Comfort Index according to Vectorvest: CI is an indicator which reflects a stock's ability to resist severe and/or lengthy price declines. AYS.AX has a CI of 0.74, which is poor on a scale of 0.00 to 2.00. CI is based solely upon a stock's long-term price history.

  • There is a risk in the size of the acquisition, which is about 1/3rd of Amaysim’s market capitalisation. Should Click underperform, due to the new shares on issue it will likely have a woeful result for Amaysim earnings per share.

  • Low Piotroski F-Score (4):

  • Failed: Is it making more Cash than it's reporting as profit? CFROA = 1.55 < ROA = 9.88

  • Failed: Is it more profitable than it was last year? ROA = 9.88 < ROA 1y ago = 23.2

  • Failed: Is the company's LT debt reducing or stable? LT Debt/Avg. Assets = 40.4

  • Failed: Is Pricing Power improving and/or Costs reducing? Gross Margin Last Yr = 30.4 < Gross Margin 1y ago = 33.8

  • Failed: Is it more Productive than last year? Asset Turnover = 1.12 < Asset Turnover 1y ago = 2.18

  • Bankruptcy Risk - Altman Z-Score (Distress):

  • Risk: Are liquid assets a significant proportion of the assets? Working Capital/Total Assets = -0.17

  • Risk: Do reinvested Earnings make up a significant portion of the assets? Retained Earnings/ Total Assets = -0.15

TECHNICAL

  • Good Timing relative to Stock trend:

  • ​Bounce back from EMA(15) = 1.96

  • Laguerre RSI cross above 0.3

  • Foundation Buy warning

  • 15 Sep: Weekly SP = $2.1 > Upper BB > Upper Acceleration Band = $1.99

  • Range BO Weekly: BUY


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