Secure 5.6% YTM from NBN Co – A Government-Owned Network Operator

Financial highlights (1HFY26, $= AUD)

NBN Co continued to record steady revenue growth, with revenue rising 2% YoY to $2,940 million. This was mainly driven by a $3 increase in residential Average Revenue Per User (ARPU), supported by stronger customer demand for higher-speed plans under the Accelerate Great programme.

The company’s EBITDA also increased by 5.5% YoY to $2,256 million, outpacing the 2% revenue growth. This stronger improvement was largely attributable to cost-efficiency gains from enhanced network performance and reliability, supported by the growing number of fibre broadband connections.

Despite this, NBN Co still reported a loss before tax (LBT) of $350 million. As shown in Table 1, the company has consistently recorded LBT in recent years, although the losses have been narrowing over time. We do not view this as a major concern, as the losses are primarily driven by non-cash depreciation and amortisation expenses related to its nationwide infrastructure investments. Excluding these non-cash charges, the company would have been profitable.

For 1HFY26 (ended December 2025), NBN Co’s financial performance remains on track to meet its guidance, with revenue expected to be between $5.8 billion and $6.0 billion, while EBITDA is projected to range from $4.2 billion to $4.4 billion.

Looking ahead, we expect NBN Co’s revenue to remain stable with modest growth, supported by continued customer migration and upgrades to higher-speed plans under the Accelerate Great programme, coupled with the price adjustments effective on 1 July 2026. Despite ongoing net losses, NBN Co's operational resilience remains bolstered by strong government backing, reflecting its critical mandate to deliver the Commonwealth's nationwide connectivity policy.

Table 1: Profitability indicators (AUD million)

	2021	2022	2023	2024	2025	1HFY25	1HFY26
Revenue	4,629	5,103	5,269	5,501	5,722	2,870	2,940
EBITDA	2,605	3,144	3,628	3,968	4,284	2,137	2,256
Depreciation and amortisation expense	-                        1,226	-              3,541	-                    3,082	-                             3,209	-                        3,275	-                  1,613	-           1,601
Loss before income tax	-                        3,838	-              1,867	-                    1,109	-                             1,071	-                           963	-                     457	-              350

Source: Company Reports, iFAST Compilations. Data as of 31 December 2025.

Credit Highlights – High Leverage but Supported by Strong Liquidity Buffers

Despite the losses, NBN Co has consistently maintained positive operating cash flow, which stood at $2,050 million as of December 2025 (1HFY26).

While the company delivered improvements in both revenue and profitability, it continues to rely on a mix of private debt financing to support its operations and investment activities. This is largely due to the substantial capital requirements associated with its ongoing network upgrade program.

Encouragingly, NBN Co’s capital expenditure (CAPEX) and free cash flow (FCF) trends indicate improving financial sustainability. The company generated positive free cash flow in FY2025 despite elevated CAPEX levels, reflecting stronger operating performance and disciplined capital management.

As the fibre upgrade program approaches completion, we expect CAPEX to moderate gradually from FY2027 onward, while revenue growth is likely to remain supported by an expanding fibre footprint and higher service uptake. This should support FCF generation moving forward. Consequently, NBN Co is expected to become less reliant on external financing over the medium term.

Table 2: NBN Co’s cash flow generation (AUD million)

	FY2021	FY2022	FY2023	FY2024	FY2025	1HFY26
Operating cash flow	1,234	3,369	3,341	3,665	4,242	2,050
CAPEX	-3140	-2618	-3000	-3793	-3470	-1751
Free cash flow (FCF)	-1,906	751	341	-128	772	299

Source: Company Reports, iFAST Compilations. Data as of 31 December 2025.

In terms of gearing, the company remains highly leveraged, with net debt-to-EBITDA at 9.2x in December 2025, a slight improvement from 9.4x in June 2025. The elevated gearing level is mainly attributable to the substantial investment required to build its nationwide broadband infrastructure.

In 2016, NBN Co received a $19.5 billion loan facility from the Australian Government and progressively drew down the facility by 2020. In 2021, the Government mandated that NBN Co transition to private global debt markets to refinance and repay the $19.5 billion government loan by mid-2024, mainly because of:

i)                    NBN Co is expected to become financially stable and self-sustaining

ii)                  Moving the debt off the federal budget -freed up billions in capital for the federal budget to reallocate elsewhere.

iii)                Lowering the Weighted-Cost of Debt (WACD) – current: ~3.6% (initially @ 3.96%)

Given the company’s stable earnings profile, its interest coverage ratio (EBITDA / Interest Expense) has remained relatively steady at around 2.2x.

Overall, we believe the company’s credit risk remains manageable despite its higher debt levels, supported by:

i) a strong liquidity buffer, with undrawn committed liquidity of $8.1 billion (including undrawn bank facilities of $5.4 billion and undrawn equity funding under Equity Funding Agreement of $2.7billion);

ii) its status as an Australian Government Business Enterprise (GBE); and

iii) its critical role in national infrastructure, as NBN Co carries around 80% of Australia’s internet data traffic.

Table 3: Credit metrics (AUD million, unless otherwise stated)

	FY2021	FY2022	FY2023	FY2024	FY2025	1HFY26
Total borrowings (excluding lease liabilities)	24,009	24,669	20,334	26,912	28,320	28,421
Operating cash flow	1,234	3,369	3,341	3,665	4,242	2,050
Net Debt to EBITDA (x)	13.2	11.2	8.8	9.8	9.4	9.2*
Interest Coverage Ratio (x) (EBITDA / Interest Expense)	0.5	2.1	2.2	2.2	2.2	2.2

Source: Company Reports, iFAST Compilations. Data as of 31 December 2025.

Proven Track Record of Government Support and Funding

NBN Co has entered into an Equity Funding Agreement with the Australian Government, under which the government provides committed funding to NBN Co over a specified period. The funding is drawn progressively by NBN Co and is restricted to approved uses, primarily capital expenditure (CAPEX), as stipulated in the agreement.

As at 31 December 2025, the company had approximately $2.7 billion of undrawn funding remaining (received $32.2 billion in equity funding out of $34.9 billion), providing additional financial flexibility to support its ongoing network upgrade projects.

Although the Australian Government has mandated NBN Co to raise funding from public debt markets, this should not be interpreted as a reduction in government support in our view. Rather, it reflects NBN Co's progression toward greater financial independence as its operating performance and cash flow generation improve. Importantly, the Commonwealth of Australia remains fully supportive of NBN Co as its sole shareholder, retaining a 100% equity interest and a strong strategic commitment to the company.

Key risks

Concentration Risk – NBN Co remains heavily reliant on a small group of major RSPs, with Telstra, TPG Telecom, Optus, Vocus Group and Aussie Broadband collectively contributing around 86% of total revenue. As such, any financial distress, consolidation, or departure of a major RSP could materially affect earnings.

Technology Substitution Risk – Competition from Low Earth Orbit (LEO) satellite providers has emerged as a growing threat, particularly in regional and rural markets. Starlink offers lower latency and faster speeds than NBN Co’s legacy Sky Muster satellite services. In response, NBN Co recently partnered with Amazon’s Project Kuiper in late 2025/early 2026 to upgrade its satellite network to LEO technology, improving speed and latency performance.

Refinancing Risk – NBN Co’s high leverage profile, with net debt-to-EBITDA of 9.2x, means the company is highly dependent on ongoing access to debt markets to refinance maturing bonds. As lower-cost legacy debt matures, refinancing is increasingly taking place at higher prevailing interest rates. For example, NBN Co’s 10-year Sustainability Notes issued in March 2026 carried a relatively high coupon rate of 5.85%, which places additional pressure on net profit and future financing costs.

Our View

Overall, NBN Co’s earnings profile and operating cash flow remain solid at this stage. We continue to maintain a positive view on NBN Co despite its highly leveraged balance sheet, mainly supported by:

i)                    profitable and sustainable business model;

ii)                  strong liquidity buffer, with committed liquidity of $5.4 billion;

iii)                its status as an Australian Government Business Enterprise (GBE); and

iv)                its critical role in national infrastructure, with NBN Co carrying around 80% of Australia’s internet data traffic.

In short, the high leverage largely reflects the government-mandated nation-building project, which required substantial upfront borrowing to roll out fibre and copper networks nationwide.

At the same time, cash flow remains highly predictable, with around 90% of households relying on NBN Co’s network for internet access. As such, we remain comfortable with the company’s business model despite its elevated gearing.

NBN Co and its bond issuances are both rated AA+, broadly in line with other Australian state issuers such as Treasury Corporation of Victoria and Queensland Treasury Corporation.

In view of this, we recommend investors consider NBNAUS 5.350% 06Mar2035 Qsov (AUD) and NBNAUS 5.850% 19Mar2036 Qsov (AUD) for higher yield pick-up, currently yielding around 5.49% and 5.63%, respectively.

For investors preferring shorter-duration exposure, NBNAUS 5.200% 25Aug2028 Qsov (AUD) and NBNAUS 5.000% 28Aug2031 Qsov (AUD) may also be attractive, offering YTMs of approximately 4.89% and 5.02%, respectively.

The recommended bonds are embedded with a change-of-control put feature, providing bondholders with an additional layer of protection by allowing them to require the issuer to repurchase the bonds if a change-of-control event occurs.

Table 4: Recommended Bonds

Bonds	Years to Maturity / Call	Yield to Maturity / Call (%)	Credit Rating  (Fitch)	Min / Sub investment amount
NBNAUS 5.350% 06Mar2035 Qsov (AUD)	8.8 / 8.5	5.49% /5.49%	AA+	AUD 10,000 / 10,000
NBNAUS 5.850% 19Mar2036 Qsov (AUD)	9.8 / 9.5	5.63% / 5.63%	AA+	AUD 10,000 / 10,000
NBNAUS 5.200% 25Aug2028 Qsov (AUD)	2.2 / 2.0	4.89% / 4.89%	AA+	AUD 10,000 / 10,000
NBNAUS 5.000% 28Aug2031 Qsov (AUD)	5.2 / 5.0	5.02% / 5.02%	AA+	AUD 10,000 / 10,000

Source: BSM, iFAST Compilations. Data as of 01 July 2026.

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Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold NIL positions in the abovementioned securities. This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.