A Look At Aussie Broadband’s Valuation After Half Year Results And Dividend Announcement

Why Aussie Broadband’s latest results caught the market’s eye

Aussie Broadband (ASX:ABB) has just posted half year earnings alongside confirming an ordinary fully franked dividend. This combination often pulls investor focus because it directly links recent performance with upcoming cash returns.

See our latest analysis for Aussie Broadband.

The latest half year release, dividend confirmation and recent board change have arrived after a mixed stretch for the stock, with a 14.3% 1 month share price return but a slightly weaker 90 day move. At the same time, the 1 year total shareholder return of 37.5% points to momentum that has been building over a longer horizon.

If earnings and dividend news has you reviewing the telecom space, it could be a good moment to scan other opportunities via our 3 top founder-led companies.

With A$637.83 million in half year sales, softer earnings of A$5.07 million and an ordinary fully franked dividend on the way, is Aussie Broadband undervalued today, or is the market already pricing in future growth?

Preferred P/E of 56.6x: Is it justified?

On the numbers, Aussie Broadband trades on a P/E of 56.6x, above its own estimated fair P/E of 46.7x and far above the global telecom average of 16.7x.

P/E compares the current share price to earnings per share, so a higher multiple usually reflects the market paying up for expected profit growth. For Aussie Broadband, forecasts point to earnings growth of around 31.5% per year and revenue growth of about 14% per year. This helps explain why the market is willing to attach a richer multiple than many telecom peers.

Even so, that 56.6x P/E sits well ahead of the global telecom industry average of 16.7x. This suggests investors are pricing the company more like a higher growth tech style name than a typical telco. Against the fair P/E estimate of 46.7x, the current multiple also looks stretched. This highlights room for the valuation to move closer to that level if expectations or sentiment change.

Explore the SWS fair ratio for Aussie Broadband

Result: Price-to-earnings of 56.6x (OVERVALUED)

However, a rich 56.6x P/E and softer half year earnings of A$5.07 million leave little room for disappointment if growth or telecom sector sentiment cools.

Find out about the key risks to this Aussie Broadband narrative.

Another view: DCF paints a very different picture

While the 56.6x P/E makes Aussie Broadband look expensive against its own fair ratio and the global telecom average, our DCF model tells a different story. On that measure, the shares at A$4.97 sit around 65.8% below an estimated value of A$14.54, which points to a very wide gap between price and implied cash flows. The tension for you is which signal to trust more: today’s earnings multiple or the longer term cash flow view?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Aussie Broadband for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 7 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Mixed signals or a clear message, either way this is the kind of setup that rewards investors who get across the detail fast and think for themselves. To see how the positives stack up against the concerns in one place, take a look at the 3 key rewards and 2 important warning signs.

Looking for more investment ideas?

If Aussie Broadband has sharpened your focus, do not stop here. Give yourself options by lining up a few more ideas that fit different investing goals.

• Target value first and see which companies currently screen as 7 high quality undervalued stocks based on strong fundamentals and pricing.
• Prioritise resilience by reviewing 8 resilient stocks with low risk scores that score well on stability and risk checks.
• Hunt for future standouts by scanning our screener containing 13 high quality undiscovered gems before they sit firmly on everyone else’s radar.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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