Aussie Broadband (ASX:ABB) Surges 20% on AGL Telco Deal And 1H26 Results! But Is the Devil In the Details?

AGL Telco Deal Is EPS Accretive, But Dilution Is the Debate

Aussie Broadband had a sharp surge this morning, up 20%, after announcing it will acquire AGL Energy Limited’s telco business, described as AGL Telco, including its customers and assets.

What comes with this network is a meaningful base of services: 218,000 NBN Co Limited services, around 144,000 mobile connections, and 46,000 voice services.

ABB says that once migration is complete, it expects to add an estimated combined ~350,000 broadband services and mobile connections, plus 46,000 voice services, into its customer base.

This is a pretty large step-up in scale, and it materially expands ABB’s product footprint across broadband, mobile, and voice.

What are the Best ASX Stocks to invest in right now?

Check our buy/sell tips

The AGL Partnership Turns Into a Scale Machine

The deal structure looks fairly shareholder-friendly, but it is also clearly performance-linked.

There is an upfront equity consideration of $115 million, paid in ABB shares. Around 22 million new ABB shares will be issued on completion of the acquisition, but the issuance is staged in $2 million tranches and only happens if certain net connection growth hurdles are met over time.

On timing, the deal is expected to complete around June this year, with synergies expected to start flowing through in the first half of next year.

It is also not just a one-off acquisition. It is a long-term distribution partnership. AGL continues to sell telco under the AGL brand, while ABB provides the actual service delivery and the end-to-end customer experience.

ABB is framing this as a step change in scale, and you can see why. After migrating AGL Telco and the previously announced More Telecom and Tangerine Telecom volumes, ABB expects to become the third largest NBN provider, with broadband connections exceeding 1.25 million, plus almost 400,000 mobile connections across segments.

22m New Shares vs EPS Accretion, Who Wins and When?

The key takeaway for investors is that management is guiding to an earnings uplift once migration is complete.

They are pointing to revenue of $235 million and underlying EBITDA of $21 million from the acquired base, and they have explicitly stated the deal is expected to be EPS accretive in the first year following completion of migration.

Translation: the integration period is usually messy, but once customers are fully on ABB’s network and the cost base normalises, earnings per share should improve.

The big thing investors need to account for, though, is dilution. Around 22 million new shares are being issued as part of the equity consideration, so the market will be weighing the timing of that dilution versus how quickly the earnings uplift actually flows through.