Satellite Solutions Worldwide Group PLC (LON:SAT), which specialises in the provision of rural and last-mile broadband services, has been on an acquisition-frenzy since floating on AIM in May 2015.
Its most recent trading update highlighted the success of its strategy of augmenting organic growth with bought-in growth.
The group, which has a stated target of achieving 100,000 customers by the end of the year, revealed in a trading update covering the six months to the end of May 2017 that customer numbers are now around 90,000, up 14% since the start of the year, with particularly strong growth in Australia.
Total revenue in the first half of the current financial year soared 261% to £20.6mln from £5.7mln the year before, helped by the contribution of recent acquisitions; even so, like-for-like organic revenue growth was 13.1%.
Recurring revenue rose 281% year-on-year to £19.4mln from £5.1mln the previous year, and accounts for 94% of total revenue.
Gross margin in the reporting period improved to 37.0% from the 34.0% seen in the preceding 12-month period.
Spend, spend, spend!
The group kicked off 2017 by announcing in January it was stumping up some £870,000 for the customers and related assets of SES Techcom Services customer Auvea Ingenierie (Viveole), a provider of satellite broadband services in France.
Viveole has around 1,900 residential and business customers, and cements the group’s position as the second largest satellite broadband provider in France.
Satellite Solutions has also negotiated improved terms on a satellite capacity agreement with SES Techcom.
The contract means improved commercial terms on existing business, plus new satellite broadband capacity to support Satellite Solutions Worldwide's (SSW) sales in its primary European markets.
SSW said the extra capacity is enough to handle some 5,000 new customers, and ensures continuity of supply of bandwidth into early 2019 in the UK and French markets.
In an interview with Proactive Investors in January, the group’s chief technology officer Simon Clifton said he saw 2017 as “a massive opportunity for both organic growth and acquisitions” and hopes to make more announcements throughout the year.
"Satellite capacity is a buyer's market and it works not dissimilar to other commodity markets in Europe,” he said.
“The larger you are, the more you combine, therefore the better the price you can get.”
Watch: Satellite Solutions sees 2017 as "massive opportunity" for organic growth and acquisitions
Shortly after Clifton's remarks, the company agreed to buy Australian broadband provider BorderNET, as well as the customer bases of Norwegian broadband solutions providers NextNet and AS Distriktsnett (ASDN), for a total of £1.8mln.
BorderNET has around 3,500 residential and business customers in Australia and specialises in providing broadband services to farming and remote communities.
The two Norwegian firms – NextNet and ASDN – are both fixed wireless broadband solutions providers, although NextNet also has a focus on ADSL broadband as well.
NextNet has 1,680 customers while ASDN has about 330 residential and business customers in the west of Norway.
Last summer, SSW boosted its presence in both of the regions after it snapped up Norwegian firm Breiburg and Aussie group Skymesh for a total of £11.7mln.
Those deals were completed just a few weeks after Satellite took out its UK rival Avonline for £10mln.
Broadband access the growth driver
SSW is an Internet service provider but the twist is it delivers the connection via satellite.
It provides its services to businesses as a back-up to the traditional line or cable based service; the construction sector also uses SSW, as do broadcasters.
However, its stock in trade, the part that generates most of the sales, is connecting remote communities across Europe to a workable, reliable and reasonably fast Internet services.
These are the areas where it is just not cost effective to introduce traditional broadband.
In Wales, for instance, there are 40,000 rural households that don’t have what nowadays would be considered bog standard Internet access.
In all, anywhere from 5-15% of the population of Europe requires a service such as SSW’s.
There are plenty of providers – around 50 here and on the Continent.
Some are loss-making, while others are unwanted appendages of larger organisations.
For the satellite owners – firms such as Eutelsat, SES and Avanti – there are too many of these intermediaries to deal with.
So, it makes the sector a classic consolidation play.
Broadband consolidation important
“With pressure from the networks to consolidate this is what we are doing,” CEo Andrew Walwyn told Proactive Investors.
“We are bringing businesses together - it is very much a roll-up strategy.
“We are taking different businesses, taking customers and introducing a far lower overhead.”
Walwyn reckons the current 50 operators could be whittled down to just five big players over the next five years, so the opportunity to increase scale (and create the economies that come with size) are there.
Turning the corner and heading into the black
At 7.25p per share, SSW is currently valued at £39mln. The company’s house broker is forecasting a move into profitability with earnings per share of 0.10p, which means the shares trade on a poky earnings multiple of 72.5, but this falls to 36.25 based on the broker’s forecast of earnings doubling the following year to 0.2p per share.
Full-year revenues are tipped to clock in at £40.6mln; given that the company’s revenues in the first half of the year were a little over half that, and that the customer take-up rate is accelerating, the full-year revenue forecast looks a little on the conservative side, opening up the possibility of a little bit of earnings outperformance.