VOC - Vocus Group

[galumay]

Maybe Vocus will become a good turnaround story in the next 12 months...time will tell though....


Last updated 29/11/2016.

We retain a high conviction view that the business will meet our Star Growth Stock criteria in the coming twelve months, www.lincolnindicators.com.au

Its the kiss of death when the professional spruikers are putting their spin on it so strongly!

 

[Triathlete]

Its the kiss of death when the professional spruikers are putting their spin on it so strongly!

Yes, you have a point..!

That is why in my case anyway I always wait until the technical's support that view currently it does not.

 

[JTLP]

Smashed again today. Anyone dipping in again?

 

[notting]

Smashed again today. Anyone dipping in again?

Goldman thinks it's a buying opportunity.
However, you'd want to wait for a turn at least.
further, it's still running at a somewhat confident PE of 23 ish.
So not cheap if it's becoming an infrastructure from a growth much sooner than speculated.
Every one loved it! Not now

 

[McLovin]

Goldman thinks it's a buying opportunity.
However, you'd want to wait for a turn at least.
further, it's still running at a somewhat confident PE of 23 ish.
So not cheap if it's becoming an infrastructure from a growth much sooner than speculated.
Every one loved it! Not now

That's an historical PE that doesn't take in to account the acquisitions of NextGen or MTU. It's pretty meaningless given the transformation of the company in the last 12 months. Underlying NPAT for FY17 is forecast at $205m-$215m.

 

[Klogg]

That's an historical PE that doesn't take in to account the acquisitions of NextGen or MTU. It's pretty meaningless given the transformation of the company in the last 12 months. Underlying NPAT for FY17 is forecast at $205m-$215m.

I have to ask - am I missing something here?

I understand the forecast disappointed, as did NextGen and the fact that its skewed to the 2H... but this seems well and truly overdone.

At current price of $4.10, that's a MC of $2.54bn, with underlying earnings about $210m. That's just over 12 times for a company that has ample opportunity to reinvest its earnings, not to mention the underutilisation of current networks.

 

[notting]

I have to ask - am I missing something here?

I understand the forecast disappointed, as did NextGen and the fact that its skewed to the 2H... but this seems well and truly overdone.

At current price of $4.10, that's a MC of $2.54bn, with underlying earnings about $210m. That's just over 12 times for a company that has ample opportunity to reinvest its earnings, not to mention the underutilisation of current networks.

How much have they increased their debt in order to buy all this growth givin capital raisings will be priced into that I supose?

 

[Klogg]

How much have they increased their debt in order to buy all this growth givin capital raisings will be priced into that I supose?

Fair question. But debt is sitting at just under 2* EBITDA. They even go through covenants on the AGM recording and none of them are near being breached.

It's on the higher end of what I prefer, but they could cover that with their eyes closed.

 

[McLovin]

I have to ask - am I missing something here?

I understand the forecast disappointed, as did NextGen and the fact that its skewed to the 2H... but this seems well and truly overdone.

At current price of $4.10, that's a MC of $2.54bn, with underlying earnings about $210m. That's just over 12 times for a company that has ample opportunity to reinvest its earnings, not to mention the underutilisation of current networks.

I'm scratching my head too, Klogg. OK NG is disappointing, but EBITDA is forecast to be $20m lower and MC has fallen $1.1b. Even if the company stood still, synergies (yes, yes I know!) alone would give it 10%+ NPAT uplift in FY18 from FY17. The debt is serviceable, no problems there and the underlying business is growing. Even looking at the CAPEX profile, it's pretty light and the bulk of it is growth capex which is driven by customer demand, not build it and they will come demand.

The accounts are a bit of a mess because of all the corp activity, but still...

 

[McLovin]

Fair question. But debt is sitting at just under 2* EBITDA. They even go through covenants on the AGM recording and none of them are near being breached.

It's on the higher end of what I prefer, but they could cover that with their eyes closed.

The revenue profile for this business is pretty stable too. No one is canceling their internet subscription because the economy is tanking.

 

[Klogg]

I'm scratching my head too, Klogg. OK NG is disappointing, but EBITDA is forecast to be $20m lower and MC has fallen $1.1b. Even if the company stood still, synergies (yes, yes I know!) alone would give it 10%+ NPAT uplift in FY18 from FY17. The debt is serviceable, no problems there and the underlying business is growing. Even looking at the CAPEX profile, it's pretty light and the bulk of it is growth capex which is driven by customer demand, not build it and they will come demand.

The accounts are a bit of a mess because of all the corp activity, but still...

OK, so it's not just me.

Although, on your point (in italics) - in the AGM, management didn't really seem keen on emphasizing that point. They had a bunch of angry shareholders (I don't know why, but they seemed upset...), but they kept to the presentation. They only mentioned this when it came to the Darwin>Port Headland cable project (NWCS?)

I guess I'll just file it away for now and come back later. I've done all I can to find any mistakes I may have made.

The revenue profile for this business is pretty stable too. No one is canceling their internet subscription because the economy is tanking.

My thoughts exactly. There might be some corporate customers reducing the size of the internet plan and/or data center footprint, but nothing drastic.



As an aside - I'm sure the Teaminvest staff just ask questions so they can announce they're from TeamInvest. Shameless self-promotion in question time, but it made me laugh

Thanks again, McLovin

 

[McLovin]

OK, so it's not just me.

Although, on your point (in italics)

When you quote a post it's all in italics, so you'll need to be a little more specific.

As an aside - I'm sure the Teaminvest staff just ask questions so they can announce they're from TeamInvest. Shameless self-promotion in question time, but it made me laugh

Was that the South African bloke who wouldn't shut up? Talk about grandstanding.

 

[Klogg]

When you quote a post it's all in italics, so you'll need to be a little more specific.

Haha, wow... So much fail - sorry.

I meant this:
Even looking at the CAPEX profile, it's pretty light and the bulk of it is growth capex which is driven by customer demand, not build it and they will come demand.

Was that the South African bloke who wouldn't shut up? Talk about grandstanding.

That's the guy!

 

[galumay]

I pulled the pin this morning, after going thru a lot of internal discussions overnight along the lines of you guys (McLovin & Klogg), I have some other concerns from an operational and management point of view, M2 is the WORST company to deal with, they almost make Telstra look competent, and as discussed previously the NBN margins are pure creative accounting - in the sense that they are calculated by specifically not delivering the service paid for - and the shadow of the ACCC hangs over that problem for all telcos in our market.

In the end I just couldn't make a compelling argument for VOC remaining at a price of low $4 for long, so I took a position even though its not a sector I had any great interest in being invested in.

Its interesting the sort of reactions to the slightest bad news in the current markets, not sure if its a function of the volatility, or the general world uncertainty, but we have seen it a bit recently. The reaction to the update from SDI recently was similar - I think Mr Market is very nervous and flighty at the moment, this does create some interesting opportunities like VOC this week!

 

[Klogg]

I pulled the pin this morning, after going thru a lot of internal discussions overnight along the lines of you guys (McLovin & Klogg), I have some other concerns from an operational and management point of view, M2 is the WORST company to deal with, they almost make Telstra look competent, and as discussed previously the NBN margins are pure creative accounting - in the sense that they are calculated by specifically not delivering the service paid for - and the shadow of the ACCC hangs over that problem for all telcos in our market.

In the end I just couldn't make a compelling argument for VOC remaining at a price of low $4 for long, so I took a position even though its not a sector I had any great interest in being invested in.

Its interesting the sort of reactions to the slightest bad news in the current markets, not sure if its a function of the volatility, or the general world uncertainty, but we have seen it a bit recently. The reaction to the update from SDI recently was similar - I think Mr Market is very nervous and flighty at the moment, this does create some interesting opportunities like VOC this week!

VTG also comes to mind.


On the NBN margins - I agree they're technically not delivering a service of 100/100 (for example) all the time, otherwise the CVC costs would send them bankrupt. But no telcos are...
If the government (or otherwise) were to go after them for that, nobody would sell an NBN subscription. While nothing is certain, it's highly unlikely this will happen. In fact, I'd be surprised if the ACCC didn't nudge the government further to reduce CVC charges so an adequate service is delivered.

 

[galumay]

VTG also comes to mind.


On the NBN margins - I agree they're technically not delivering a service of 100/100 (for example) all the time, otherwise the CVC costs would send them bankrupt. But no telcos are...
If the government (or otherwise) were to go after them for that, nobody would sell an NBN subscription. While nothing is certain, it's highly unlikely this will happen. In fact, I'd be surprised if the ACCC didn't nudge the government further to reduce CVC charges so an adequate service is delivered.

In general I agree with you, there is a range of how badly consumers are being ripped off though, and on the margins VOC published they must be running really awful contention ratios. The risk is that the ACCC moves in 2 directions, I agree they are likely to 'encourage' the NBN/Government to reduce the CVC charges, but I expect focus will also come on RSP's clearly gouging by massively overselling services.

The problem for the Government is that they are idealogically locked on to trying to make a return on a massive infrastructure project in a totally unrealistic timeframe. Australia's internet infrastructure has already been terminally damaged by Turnbull's ignorance of tech (despite his undeserved reputation), and it wont be easy to make progress with the luddites from the far right that control the Government.

Regardless of my concerns about the industry - I still think that while running a business in this sector will prove to be more problematic than many expect - the current price of VOC leaves a significant margin of error that offsets the risks I perceive.

 

[mcgrath111]

Had a dig in yesterday at 4.60, thinking what a bargain!...had another dig today to bring down my net avg to 4.46.
Underlying infrastructure + as mentioned P/E is no longer that of a "growth" stock. Shorters appear to have dumped it to new levels.

I might just ignore my pnl for the time being and not get caught up in the hysteria that sites such as hotcopper propogate.

 

[Klogg]

The problem for the Government is that they are idealogically locked on to trying to make a return on a massive infrastructure project in a totally unrealistic timeframe. Australia's internet infrastructure has already been terminally damaged by Turnbull's ignorance of tech (despite his undeserved reputation), and it wont be easy to make progress with the luddites from the far right that control the Government..

I totally agree on the unrealistic timeframe. The benefits of this don't even need to show as returns on the network. Just recovering most of the costs would make it successful, given all the other benefits.

 

[skc]

At current price of $4.10, that's a MC of $2.54bn, with underlying earnings about $210m. That's just over 12 times for a company that has ample opportunity to reinvest its earnings, not to mention the underutilisation of current networks.

I think the market is questioning the quality of the "underlying". The underlying number strips out some $105m in "one off" below the line expense. That's a big number and I've seen a few analysts being not too sure about it.

The other issue is the forecast of capex of $186m vs FY17 D&A of only $98m. VOC did explain how where the growth capex is growing, but again I have seen a few analysts questioning whether the D&A is too light in their model going forward.

Takeout $15-20m in each of these, the $210m underlying earnings quickly becomes $170-180m. The PE becomes 14.5-15x which isn't crazy low if the company is viewed as ex-growth. Throw into the mix the known unknowns of NBN disruption (was anyone aware of the risks and costs of switching a customer from DSL to NBN?) and ongoing economics in the post NBN world, the boardroom drama, insider selling, plus a market that tends to overshoot... that's how you can get VOC @ low $4.

Obviously it could turn out that none of these are that bad... underlying is truely $210m and there's plenty of growth left, then yes I'd have to say it's a bargain.

I'm scratching my head too, Klogg. OK NG is disappointing, but EBITDA is forecast to be $20m lower and MC has fallen $1.1b. Even if the company stood still, synergies (yes, yes I know!) alone would give it 10%+ NPAT uplift in FY18 from FY17. The debt is serviceable, no problems there and the underlying business is growing. Even looking at the CAPEX profile, it's pretty light and the bulk of it is growth capex which is driven by customer demand, not build it and they will come demand.

The NextGen hole seems really odd... esp for a business that is supposed to have stable revenue. I am guessing NBN is a competitor of NextGen's fibre? Is that why contracts are resigned on lower margins?

 

[galumay]

... I am guessing NBN is a competitor of NextGen's fibre? Is that why contracts are resigned on lower margins?

I dont think so, NBN isnt in the business of backhaul & dark fibre. There is a lot of excess fibre capacity on various major backhaul routes. It may be a reflection of that.