Superloop shares shares hit highest levels since 2019 after breakthrough Origin Energy contract

The board of Brisbane-based internet service provider (ISP) and challenger telco Superloop (ASX: SLC) expects a "landmark" exclusive six-year broadband contract with Origin Energy (ASX: ORG) will add $19 million in annualised earnings once the new customer's subscriber base is transitioned across in FY25.

Origin will be given almost 10 million Superloop shares for migrating its 130,000 customers, and will receive another $30 million worth of Superloop shares if it can achieve further customer growth milestones.

It is estimated that this influx of new accounts will lift Superloop's total customer numbers to 560,000.

Origin will also be granted more than 55.6 million options upfront on signing, diluting 10 per cent of Superloop's current share capital, but this fact failed to dampen investors' reception of the news with shares surging 29.5 per cent in early trading to hit $1.36.

This represents share price levels unseen at the company since mid-2019 after the Queensland Investment Corporation (QIC) pulled out of a takeover bid, and adds to a resurgence for Superloop since it received a takeover offer from rival Aussie Broadband (ASX: ABB) which the board has deemed "opportunistic".

Adding salts to the scorned Aussie Broadband's wounds, the Origin deal with Superloop appears to be taking away its customers. ABB shares are down 17 per cent today at the time of writing.

"We are disappointed we have not been able to reach an agreement with Origin to renew our white label wholesale agreement, however as a company we have always been disciplined in ensuring every contract delivers value to our shareholders while also ensuring we can maintain a high quality service offering for customers," says Aussie Broadband group managing director Phillip Britt.

"In the case of Origin it became clear that, given the contract parameters they set us, we would not be able to meet either of these objectives.

"Given the growth profile of ABB, and the retail and wholesale opportunities we are pursuing, we took the view that it was important that a disciplined approach to assessing contracts and how capital is deployed is critical."

Superloop CEO Paul Tyler says securing the Origin contract is a key progress milestone in the company's three-year growth strategy.

"It delivers a step-change in our customer numbers and cements our market position as a leading wholesale broadband and backhaul provider," says Superloop CEO Paul Tyler.

"In order to create strong alignment and pursue growth in broadband customers, we are delighted to welcome Origin as a shareholder and to issue it an option to acquire further shares."

The contract contains customary warranties, indemnities and limitation of liability clauses that apply to each party, and customary termination provisions.

"Australia’s energy retailers are investing heavily in product bundling and we are very pleased to be the partner of choice for reliability, service and value," Tyler adds.

"In addition to Origin’s wholesale subscriber base, we are pleased to report that Superloop has continued the strong momentum in its own subscriber base, adding 21,000 subscribers in the first two months of this calendar year (in addition to the 40,000 subscribers added in the six months to December 2023).

"The announcement of this material wholesale contract, coupled with the strong operational performance demonstrated in our existing business, reaffirms our confidence in the delivery of our three-year ‘Double Down’ strategy and the underlying value being created for shareholders."

As a result of this breakthrough, Superloop is upgrading its FY24 underlying EBITDA from $49-53 million to a more concentrated band of $51-53 million, alongside underlying EBITDA growth of 60-70 per cent in FY25. 

The company says that given the significance of new customer wins, Superloop anticipates that it will spend a one off incremental capital expenditure of $5 million spread across FY24 and FY25 on top of its $20-22 million capex guidance range.

Today's news comes shortly after a consolidation of Superloop's leadership structure with Dean Tognella, who has been acting in the role of chief financial officer since October last year, instated permanently in the position as of 6 March.

"The board and I want to thank Dean for his incredible enthusiasm and impact whilst in the acting CFO role. During this time, Dean led the 1H FY24 results process, demonstrating his deep knowledge of the business and industry, strong leadership and financial acumen, contributing significantly to the company's financial success and growth," Tyler said at the time.

At the same time that Tognella took on the acting CFO role in 2023, Daisey Stampfer took on his previous role as group executive business & wholesale - a job she has also taken on a permanent basis as of this month.