Remote working trend bolsters demand for Superloop

Remote working trend bolsters demand for Superloop

Cloud services connector Superloop (ASX: SLC) has experienced a "significant" increase in traffic across its network in recent weeks as companies take up video conferencing and remote working to ride out the Covid-19 pandemic.

In a letter to shareholders today, chairman and founder Bevan Slattery (pictured) said this rise was particularly the case across Superloop's global IP transit backbone and international networks.

Shares in the company rose 25 per cent to $0.70 this morning by 11:40am AEDT.

Superloop subsidiary SubPartners played a key role in building the INDIGO subsea cable project connecting Australia with Singapore.

"As a result, Superloop expects to realise increased revenues from its wholesale IP transit and international capacity products during this quarter, particularly its Indigo international cable system," Slattery said.

"These new contracts are predominantly multi-year, recurring revenue agreements, structured with high cash contributions, and are able to be provisioned by Superloop within 30-60 days."

The expected increase in revenue has been factored into guidance, which Slattery said was still tracking within the $12-15 million announced on 18 February.

Business hasn't been entirely smooth sailing though, with uncertainty surrounding the company's Guest WiFi and student accomodation clients as a result of social distancing measures and travel restrictions for many international students.

"As foreshadowed in our guidance update on 18 February 2020, for conservatism, we anticipated a potential temporary reduction in Guest WiFi revenues from possible restrictions on international students returning to Australia for their studies and disruptions to international travel," Slattery said.

"With Universities recommencing in late February-early March, Superloop has now been able to quantify the level of that impact to date, which is currently in line with our initial assumptions.

"Since that time, we have seen consistent device activations during the month of March within the student accommodation facilities we service."

He says international student numbers are expected to remain relatively constant, but the number of domestic student numbers using these services may decline as some return to families over the Easter break and decide to undertake distance learning during the next term.

The announcement comes just a day after another Slattery-founded company, NEXTDC (ASX: NXT), embarked on a $672 million capital raising for expansion to support growing demand.

In the early stages of the virus' spread, Slattery's cloud technology company Megaport (ASX: MP1) pre-ordered around six months worth of critical supplies such as optics and transceivers, as well as equipment for planned rollouts for the financial year.

A new subsea cable for Australia

The serial entrepreneur has also recently achieved a milestone for his infrastructure group SUB.CO, which is building a subsea cable to connect Oman to Perth.

Early last month the project entered Contract In Force status (CIF) with its final system connection expected to be completed in December 2021.

At the time, Slattery said the cable manufacturing was expected to begin in April, with installation of the cable and repeaters expected to start in about a year from now.

What makes this project's business case so compelling for him is the fact a lot of internet traffic demand already exists from Europe and the Middle East to Australia.

"This would be the first express route between Australia and Europe," Slattery told Business News Australia, adding it would involve a start-to-finish expenditure of close to US$200 million.

"The real key here is all the cables that come out of Australia to the west, all basically go up through Singapore through the Sunda Straits in Indonesia -  it's pretty shallow through there. Singapore is absolutely the right place to go, but there are no cables to avoid that route.

"And because it's quite shallow for about 1300km, the likelihood of impact is higher."

The big difference with the Oman-Perth cable is that it will run through mostly deep ocean water, making it "the fastest, most secure route", according to Slattery.

"But it also provides redundancy and diversity to the existing investments they have made. This isn't about replacing other routes; this is about complementing other routes," he said.

"SUB.CO is obviously different to Superloop. One of the things we've made sure of is we have a certain upfront commitment from certain customers, which we've been able to secure.

"It's not really about external holders, we've got significant pre-sale capacity that we've already done on this and we're prepared to take the longer term view on the remaining investment, primarily because it will be the only express route from Australia to Europe."

He says for any business that is latency sensitive, the SUB.CO route is the one they'll need to be on.

In that interview in early March, Slattery said he was really excited by Superloop despite some of its challenges recently including the collapse of takeover talks with QIC and a general decline in the share price.

"It's been a difficult couple of years, but we really focus incredibly hard for quite a while to get the business fit. It's much fitter now than it's ever been.

"The infrastructure we've got on Superloop for example is 25, 40, 50-year assets, and people are valuing it on how much you can make within a year or two of an asset going live.

"The ASX at times can be your friend in terms of getting investment for longer term projects...but when people talk about the shorter term, I think having infrastructure assets that are in the growing phase of what they do, the ASX is probably not where you want to be.

Updated at 11:40am AEDT on 3 April 2020.


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