Superloop Limited (Superloop, the Group, ASX: SLC) was founded in 2014 and has been listed on the ASX since June 2015 following a $17.5 million IPO. The Group constructs and operates telecommunications and fibre infrastructure to service three client segments of the market: Consumer, Business and Wholesale. Superloop operates throughout Australia, Hong Kong, and Singapore.
Operating expenses growing at a lower rate than revenue
Superloop’s low-cost operating model combined with rapidly growing customer numbers is providing operating leverage that enables Underlying EBITDA to grow faster than revenue. This is a strong pointer to accelerated profit growth in the years ahead.
FY24 results showed total Revenue growth of 30 percent to $420 million, and Operating Expenses increasing by 16 percent, delivering an Underlying EBITDA growth rate of 45 percent to $54.3 million. This compares to EBITDA of $37.4 million in FY23. All three business segments contributed to growth, with Consumer revenue up 47 percent to $264 million, Business revenue up 4.3 percent to $104 million, and Wholesale revenue up 9.4 percent to $48 million.
Operating cash flow was $49.9 million, and with Underlying EBITDA at $54.3 million, Superloop’s operating cash flow conversion ratio is running at 92 percent at this early stage of its growth cycle. The Group’s strong cash flow means that it has no bank debt, and its cash increased by $19.7 million during the year.
Superloop competes with the major telcos in Telstra, Optus and TPG Telecom. Superloop does not have the legacy cost structure of the more established telecommunications service providers. About half of Superloop’s staff are based offshore and the Group invests in Artificial Intelligence and automation of its platform to boost productivity. This reduces the Group’s cost to serve and the cost to acquire new customers. The Group’s extensive existing infrastructure footprint in Australia provides operating leverage as it grows its customer numbers, and this will continue to be a source of competitive advantage for decades to come.
Growth across all business segments
Superloop’s activities comprise three operating business segments which collectively grew the combined customer base by 87,000 in FY24 to a total of 455,000 as of 30 June 2024.
The fast-growing Consumer segment increased its customer numbers by 80,000 in FY24 to 323,000, an increase of 33 percent compared to FY23. This service offering generates a Gross Margin percentage of 28.2 percent.
Business segment customers increased in FY24 by 4,000 to 93,000 and generated a 40.2 percent Gross Margin.
Wholesale customers increased by 3,000 to 40,000 in FY24 and contributed a Gross Margin of 59.5 percent. Wholesale customer numbers are expected to increase significantly in FY25 from the inclusion of new and migrated Origin Energy white-label customers. Origin Energy provides a bundled energy and broadband offering to its energy customers to increase its energy customer base as an increasing number of households take up bundled electricity, gas and broadband offerings for their homes. Origin’s offering has seen significant growth in its broadband business since its establishment in 2018 because its wholesale supply arrangements with Superloop provide highly competitive broadband solutions to Australian households.
The Future
Origin Energy’s 150,000 broadband customers’ migration to Superloop commenced in July 2024 and should be complete by October 2024. This new subscriber base for Superloop is estimated to increase EBITDA by $19 million annually.
It is significant that Origin Energy has chosen Superloop as the trusted partner for its bundled energy and broadband offering because it highlights the competitiveness of Superloop’s pricing and capacity compared to other telcos.
This planned Origin Energy subscriber growth combined with Superloop’s organic growth and supplemented by future M&A opportunities should leverage earnings further in FY25 and FY26. Superloop is forecasting EBITDA growing to $83 – $88 million in FY25, representing an increase of 53 to 62 percent in FY24. Superloop’s growth ambitions are reflected in its “Double Down” strategy with the stated ambition of doubling the size of the business between now and the end of FY26.
Superloop’s infrastructure assets, which include fibre, subsea cables, and fixed wireless as well as Superloop’s platforms are also set to expand with a capital expenditure of $30 million in FY25. This expanded and upgraded network capacity should further increase Superloop’s operating leverage and continue to drive earnings materially higher in the decade ahead.
