Thoughts on ABB after its contract loss

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Question asked 15/03/2024

Thoughts on ABB after its contract loss

You may have already answered this by the time the weekend comes around, but with ABB losing the Whitelabel contract of Origin to Superloop, does it change your view of ABB, is it a buy at these lower levels, or is SLC potentially now on your "growth" list? I appreciate this Q&A facility! Cheers Tony Hi MM, Further to your commentary on ABB earlier today, I note that MM remains long and bullish on ABB. Given today's announcement on the termination of the white label agreement with Origin and the market's strong reaction to that announcement, can you please explain why you still remain long and bullish on ABB? Also, how the announcement alters your thesis for holding ABB, if at all, and your expectations in relation to ABB. Finally, do you consider the share price reaction appropriate in the circumstances or too harsh/overdone? Many thanks, Darren

Answer

Hi Tony & Darren,

Adding to what we wrote at the time here, while disappointing, we don’t think losing the Origin contract is as dire as the ~20% share price reaction suggests. We recently trimmed ABB in the Emerging Companies Portfolio which affords a little more flexibility as a result. We think ABB can recoup much of the lost earnings over the next few years and potentially put the business in a better position. Sometimes it’s better to walk away from uncommercial deals, which is what ABB seems to have done in this instance.

Superloop (SLC) look to have sold their future for the deal, potentially giving up more than a quarter of the company for Origin’s contract. As guidance suggests, this will bear fruit early, however, much of their longer-term earnings are now tied to Origin which has already proven a little flippant on their telco aspirations.

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Aussie Broadband Ltd (ABB)

LAST UPDATED 14/03/2024 14:41

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