Fibre Broadband Shares

[Snoopy]

A look at the numerical Buffett Tests 2,3 and 4 will tell you why it is the Australian Federal Government, and not share investors, that are funding this. As at EOFY2020, the debt ratio is

$34,750m / $36,850m = 94%

Only positive cashflow can save NBN from here!

From AR2020 Section E

"As at 30 June 2020 the total committed equity funding of $29.5 billion from the Commonwealth had been provided to NBN Co under the terms of the EFA."

Translation: $29.5 billion of equity is all you are going to get management - deal with it

"On 22 December 2016, a $19.5 billion loan agreement with the Commonwealth Government was signed for the period from 1 July 2017 to 30 June 2021. On 26 March 2019, the tenor of this loan was extended by three years to 30 June 2024."

Translation: You have screwed up your revenue projections. So to stop this thing going belly up, we will give you three more years to sort out some private funding.

"During the year NBN Co entered into facility agreements with a number of financial institutions to secure $6.1 billion of private sector debt for a period of five years. There have been no drawdowns from these facilities as at 30 June 2020."

Translation: $6.1billion found. Only $13.4billion to go. Keep an eye on that positive cashflow, managers.....

This blog from Gary Mclaren highlights some of the issues as the changing forecasts for planned future cashflows unfolded.

https://www.mclarenwilliams.com.au/2...#disqus_thread

The Kevin Rudd Labor plan from 2013 was forecasting $19.4billion in revenue over the 11 year planning period from 2010 to 2021. The latest ScoMo Coalition plan from 2019 had planned revenue slashed to $15.1billion, even as Capital Expenditure costs blew out from $32.9billion to $37billion.

The big difference between NBN in Australia and Chorus in New Zealand is that Chorus owns the legacy copper network. Chorus in New Zealand can harvest profits from the legacy copper network as their own fibre broadband roll out progresses. Contrast that to NBN which must buy out the existing networks run by the incumbent Telstra and Optus networks (the buyout being recorded in the accounts as 'subscriber costs') as NBN expands. P56 of AR2020 explains what is happening in this regard:

"Subscriber costs of $2.4 billion continue to reflect payments to Telstra for the disconnection of existing services and to Optus for the migration of subscribers to services over the nbnTM access network. These costs are expected to virtually cease by FY22 and, therefore do not reflect ongoing activities."

This means that those huge annual losses being posted by NBN are not quite as dire as they appear, given a longer term view. That is why 'EBITDA before subscriber costs' is a much better measure of debt servicing ability than net profit. I don't think Warren Buffett would be rushing to invest in this business. But it might not be quite as dead as those bare Buffett test figures make it appear.

SNOOPY