What You Need to Know About the Amaysim IPO

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Bargain basement mobile reseller Amaysim is finally going public.

After months of speculation, they’ve confirmed that they’re going to list on the ASX in mid-July.

The final IPO price is $1.80 per share. This gives the company a total market cap of $317 million. It’s less than analysts were expecting. For example, Macquarie Bank said it would be somewhere between $367 million and $483 million. And Goldman Sachs said it would be between $377 million and $502 million.

What is Amaysim, anyway?

Amaysim is a low-cost mobile phone and data provider. Unlike Telstra [ASX:TLS] and Optus, they don’t own their own infrastructure. Rather, they buy the rights to use Optus’s networks, at wholesale prices. Then they resell the service to their customers at retail prices.

This model has its advantages and disadvantages. On one hand, they don’t have to overinvest in capital works, building new towers or maintaining interchanges, etc. On the other hand, they’re relying on an intermediary to provide them with a good level of coverage, so their customers get a good level of coverage.

Andrew Reitzer is the chairman of Amaysim. He’s understandably pretty upbeat about their prospects. He said that ‘Since launching in 2010, amaysim has become one of Australia’s fastest growing mobile service providers (MSP), with a 93.2% subscriber compound average growth rate since FY2011 and it is the fourth largest independent MSP in Australia by number of subscribersIt’s an impressive track record of growth and we are well-positioned to continue to build on this solid market position.’

The company is aiming to keep up the momentum. They have about 700,000 customers at the moment. By the 2019 financial year, they want to make that 1 million.

Amaysim CEO Julian Ogrin thinks that their unique difference lies not just in pricing, but in user friendliness. ‘Amaysim has developed into a compelling challenger brand with the strength of our online-led business model allowing us to provide a superior user-friendly customer experience in Australia’s fast-evolving mobile services market.’ In other words, forget queuing up at a store or waiting on your landline to get service — you can do it all online. In fact, you can order a SIM online and get it delivered within three hours (provided you live in the Melbourne city area). Help and support is available via online chat, social media, phone, or email.

Plus, unlike many mobile providers — even resellers — Amaysim doesn’t make most of their money by selling phones at a premium on long term contracts. They sell handsets outright, and allow new customers to bring their own phone.

The official offer prospectus lays out a number of other features that Amaysim thinks makes it a standout opportunity. For example, they offer ‘no lock-in contracts and transparent pricing.’ And they’ve got a customer service centre based in Sydney, so customers can deal with a local rep. Plus they don’t have any brick and mortar stores, which helps keep their costs low.

Does Optus control Amaysim?

In some ways, yes it does. Amaysim is a wholesale customer of Optus, so they pretty much have to do business on their terms. Some institutional investors were reportedly worried that Optus would squeeze Amaysim’s profit margins, which is why they weren’t keen to pay the target price.

Last week, Arnhem Investment Management partner Theo Maas said ‘Optus has a bit of a history of changing prices for its wholesale customersOptus is going head-on with all of these guys including Amaysim so it’s not clear how they can avoid that.’

But in the prospectus, Amaysim laid out the details of its wholesale agreement with Optus. First of all, Amaysim has the option to extend their contract with Optus up to December 2024 if they want. So they’ve got at least nine more years of supply, if they want it.

Importantly, Optus has agreed to provide Amaysim with ‘mobile voice, data and SMS services across its 3G and 4G networks with the same coverage and quality of service as provided to Optus’ own retail subscribers.’ So Optus customers aren’t given any sort of special priority within the network.

Also, there are laws in place that could help protect Amaysim. For example, the Competition and Consumer Act prevents Optus from forcing Amaysim to charge a certain price for their retail services, although they can still recommend prices. It also stops them from withholding wholesale mobile services, and from only providing them on terms that are unfair or outrageously expensive. For example, look at subsections 1 to 3 of section 96 and subsection 1 of section 98.

Basically those sections mean Optus couldn’t jack up its prices for Amaysim without raising the prices for other wholesale clients. And they can’t make Amaysim charge higher prices. Or give them worse coverage for the price they’re paying.

How are other telcos performing?

There are nearly 30 different telecommunications service providers listed on the ASX.

ASX telcos
Source: asx.com.au
[Click to enlarge]

Of those, about a third provide some kind of mobile voice and data service. The rest are ISPs, cloud solution providers, and others. Below is a sample of wholesalers and retailers that will be (at least partially) in competition with Amaysim.

ASX telcos growth

Source: Google Finance
[Click to enlarge]

As you can see, with the exception of the freshly-listed Flexiroam, they’ve all been able to grow this year. That might indicate that, even though competition is tough, there’s plenty of room in the market for Amaysim.

By the way, if you’re looking for a telco stock to add to your portfolio, don’t miss Sam Volkering’s report ‘3 Aussie Small-Cap Stocks for Every Portfolio’. In this exclusive report, Sam introduces an IT services company that’s in the list of 27 above. This IT services company uses ‘dark fibre’ to provide highly customised data transfer services. If that doesn’t mean much to you, the potential return will…Click here to find out how to download your free copy.

Eva Mellors,
Contributor, Money Morning

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