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Satellite Solutions Worldwide Group: THE INVESTMENT CASE

Satellite Solutions Worldwide Group continues to grow through acquisitions

The fourth largest independent provider of satellite broadband internet services in the world expects to reach its target of 100,000 customers by year-end
Satellite Solutions Worldwide Group continues to grow through acquisitions
INVESTMENT OVERVIEW: SAT The Big Picture
Cant get a connection - see SSW

Satellite Solutions Worldwide Group plc (AIM: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.

This year’s story is no different and the company expects to make further investments this year.

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 has today announced it has 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.  

UK government’s satellite scheme...

Last year the company also signed a contract with BT to supply a subsidised service to people whose current connection speed is below 2Mb.

This is in addition to a UK government-funded scheme, BDUK, which aims to increase broadband coverage to 95% of the UK by 2017.

Up to 300,000 broadband users across the UK are estimated to be in need of the service, according to the government, though SSW conceded the BDUK take up so far had been slower than expected due to the complex application process, something it its trying to address.

Under the BT satellite scheme, the government will pay for the cost of the dish and modem equipment, connection fees and professional installation for those who qualify.

A similar service also operates in Wales in conjunction with the Welsh government while SSW is also part of the French intervention scheme. Both of these are going well it said.

Satellite to beat full year market expectations…

In its last trading update in November, the company said financial results for the year to 30 November 2016 are expected to be ahead of current market expectations following a strong second half.

Back in its half-year report in August, Satellite told investors that it was on track to hit the expected numbers, but it has hailed the impact of its acquisitions as well as the overall performance of its existing business since then.

The company reported a 78% jump in turnover to £5.7mln in the six months to 31 May 2016 compared to £3.2mln in the same period last year, while like-for-like organic recurring revenue was up 17% to £2.7mln, from £2.3mln last year. Average revenues per user increased from £36.16 to £40.06.

“The rapid and successful integration of the acquisitions which we have completed around the world, both big and small, show the robustness of our systems and management's ability to control growth,” Chief executive Andrew Walwyn said.

“Our focus on increasing revenues, cost control and, most importantly, cash generation, is already starting to be shown in these results.”

At the time of its half year results, the group’s global customer base stood at 74,500, an increase of 680% prior to its flotation. 

The company said it was firmly on course to achieve its target of 100,000 customers by the end of 2017.

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,” 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.”

Last firms standing

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.

At 8.99p per share, SSW is currently valued at £47.6mln.



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March 07 2017
The fourth largest independent provider of satellite broadband internet services in the world expects to reach its target of 100,000 customers by year-end

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