Recent weakness in Aussie Broadband (ASX:ABB) prompted us to research the Company in The Dynamic Investor to assess whether ABB presented value. We concluded that a cautious view was warranted on several grounds. With the shares having declined by ~10% since our recent report, is the risk-reward now more favourable?

About Aussie Broadband

Aussie Broadband is a provider of broadband, mobile and voice services in Australia across the Residential, Business, Enterprise & Government (BG&E), and Wholesale segments, with a range of broad telecommunications solutions through its data, voice and wholesale services. The Residential segment is the main value driver, accounting for ~60% of group revenue and ~50% of group earnings. The Company operates as a re-seller of broadband (from NBN Co), and owns fiber infrastructure.

Key Fundamental Drivers

Subscriber Growth Tracking Below Expectations

For the six months to 31 December 2025 (1H26), ABB reported a solid 40,000 of net subscriber additions. Of these, 26,000 were generated from the Residential segment. After continued momentum in net subscriber additions early in 2H26, the Company upgraded the bottom end of its FY26 EBITDA target range from $157-167m to $162-167m. Further, the Residential segment increased its Gross Profit Margin (GPM) by 30 basis points (bps) to 31.6%, highlighting that the Residential segment can grow share profitably.

In a recent trading update issued to the ASX, ABB reported that it had delivered 28,000 net additions in the first five months of 2H26. Assuming this run-rate continues in June 2026, the overall net additions for 2H26 (at ~33,600) is below consensus estimates of ~36,000. This would also be below the reported 48,000 in the prior corresponding period (pcp). The potential for a below-consensus outcome for 2H26 is likely a result of several factors, including:

• ABB’s focus on migration of subscribers from recent acquisitions (More/Tangerine and AGL Telco)
• Strong competition with heightened discounting prevalent across the market (discussed in further detail below).

Will Increased Competition Derail ABB’s Aim to Expand Market Share?

Internet Service Providers (ISPs) have implemented price changes ahead of the July NBN wholesale price hikes. ABB has elected to be one of the first movers in May with price changes which is likely to have contributed to customer churn towards the end of May. However, promotional pricing offered by more aggressive ISPs is unlikely to be sustainable particularly with imminent NBN wholesale price changes. Further, industry feedback suggests that customers are increasingly focused on quality, customer service levels and reliability of services. Accordingly, this makes ABB well positioned to continue to grow.

Notwithstanding its slower-than-expected subscriber growth rate, ABB is still expected to surpass 1.3m broadband customers during 1H27, taking ABB into the #3 industry position and at a level where there is meaningful business scale. Currently, ABB has ~1m broadband customers. The Company had noted at the 1H26 results release in February that it expected to become the 3rd largest NBN provider by 2Q27 with >1.25m broadband customers.

The key earnings growth driver for ABB is the structural shift within the Australian broadband market from the incumbents to challenger brands. Market share for challengers (including ABB and Superloop) is currently at 22%, with expectations that this figure could reach at least 35%.

With a broadband customer base of 1.3m, the Company’s NBN market share is expected to grow further to ~9% by the end of FY26. In 1H26, ABB’s market share of on-net NBN services improved by 400bps to 8.8%. ABB’s acquisitions of AGL Telco and Nexgen should support an NBN market share of >15%. The acquisition of Nexgen is a key contributing factor to this growth, as it takes the Company deeper within the small enterprise market, which has lower churn rates, stable margins and ability to differentiate through service and technical integration.

Low Gearing Position Supports Growth & Capital Management Initiatives

Gearing (on a net debt to EBITDA basis) increased to 0.9x as at 31 December 2025, from 0.7x at the end of the 1H25 period. The gearing level has reduced further since 31 December 2025, to 0.72x at the end of May 2026. This is at the lower end of the target range of 1.75x – 2.5x. The lower gearing position provides ABB with significant financial flexibility following completion of recent transactions. To this end, the Company has a track record of integrating complementary and accretive transactions to support earnings growth.

Further, cashflow profile is strong, supported by an increasingly capital-light operating model. This provides increasing flexibility to support future capital management initiatives alongside continued investment in growth opportunities.

Fundamental View

ABB shares are currently trading on a 1-year forward P/E multiple of ~15x. While this is below the bottom end of the recent trading range (17-23x), we consider that the risk-reward remains unfavourable. In particular:

i. There is a risk of lower-than-expected growth in net subscriber additions for the Residential segment over the short-term, given heightened price competition. The latter is occurring at a time when ABB is concurrently reducing promotional activity. To this end, we note that ABB depends on an elevated level of marketing to drive subscriber growth.

ii. Successful integration of recent acquisitions/transactions is needed for ABB shares to re-rate. In particular, the Company needs to deliver on cost savings target and grow the core Residential subscriber base) towards the targeted range. In this regard, consensus estimates are not fully pricing in any potential upside in EPS growth from the FY28 ambitions from the enlarged subscriber base and margin enhancement initiatives.

iii. Whilst recent deals will help ABB toward its updated FY28 strategy, the Company requires further Merger & Acquisition activity to bridge the gap given the slower-than-expected subscriber growth rate.

Charting View

ABB had a great run towards the end of 2025 where it managed to retest the 2022 high near $6. It then fell back for a few months after that before rebounding again in February. The pullback in the past few weeks has seen it fall back again to an uptrend line that has been in place since 2024. If it cannot hold here, then we would be looking at the next line of support to come in near $4.25.

 

Michael Gable is managing director of Fairmont Equities.

 

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