Satellite Solutions Worldwide (AIM: SAT) is growing rapidly by acquisition as it ‘rolls-up’ independent broadband providers. Internet speeds over conventional phone lines for consumers in rural areas can be painfully slow. Bandwidth is often not sufficient to run today’s data-hungry applications. Delivering internet connectivity via a satellite dish offers a viable solution and SSW is consolidating this fragmented market.
Its latest purchase is Quickline, a UK provider of fixed-wireless broadband with 4,500 customers. This uses a different technology, which SSW already deploys in Norway, but addresses the same market. The company raised £8 million in a placing at 7p to fund this acquisition and leave it with around £4 million cash for further deals.
SSW had grown to 90,000 subscribers at the half year stage year, up from 25,000 a year ago, and is on track for 100,000 by the end of the year. This means it’s starting to get some real economies of scale coming through. The interims showed overhead costs falling to 27 per cent of revenues, compared to 37 per cent last time. As subscribers are acquired, their billing and admin needs are consolidated onto a common platform. Similarly the company’s enhanced buying power is bringing down the cost of satellite capacity, which has boosted gross margins to 37 per cent from 29 per cent.
As a result SSW will record a maiden profit at the pre-tax level this year. The main strategic thrust though will still be on growing the size of the business rather than maximising short-term profitability. There’s a good footprint in France but no exposure to the other major western European economies of Spain, Germany and Italy. Likewise in eastern Europe there’s a Polish business but plenty of scope to expand elsewhere in the region. CEO Andrew Walwyn also points out that new satellite technology launching in 2020 will bring 100mbps speeds with no data caps, which will add to the attractiveness of the proposition.
The end game could well be a takeover once the company has reached sufficient scale. Meanwhile the stock trades on 21 times Novemebr 2019 earnings.