VOC - Vocus Group

[Klogg]

What sort of ROI does Vocus expect for the $227m spend?

I assume you mean the US170m (AUD226.6m) spend on the Aus-Singapore cable?

Well, they don't answer it outright, but they do mention the following items:

- Vocus currently expects to receive IRU pre-payments of approximately $US100m during
the build period. (see note 4)

- The report estimates ASC has the opportunity to capture a minimum of 15.5Tbps of capacity sales by year-end 2029, resulting in expected revenues of at least US$550m over this period, by which time ASC will have been operating for only 40% of its effective life

Note 4:
(4 Estimated ASC IRU revenues 2017-2018, per Telegeography “Australia Singapore Cable Study” report, 2016)

So there's no definite answer, but spending US$170m to get US$100m upfront (net US$70m), along with another US550m revenues from that net 70m over 10 years.

If you assume those figures are correct (I think the revenues are quite low), then you know your capex (US$70m), you know your revenues (US$550m). All you need to do is:
1) Figure out costs for running it
2) Figure out the revenue profile - how much of the US550m of received every year up to 2029
3) Allow for depreciation of the asset over 25years
4) DCF it - discount future cash flows to the net present value

To be honest, there wouldn't be much value in it (for me), as the revenue numbers wouldn't be accurate and running costs are an unknown (I can't imagine they're large, but it's likely I'll get them wrong)

That said, it would be hard to see how they don't make 20%+ ROC, if you assume a cash outlay of US$70m (because of the prepayments) - even though P&L figures would look different as revenue isn't recognised. (i.e. the prepayments would like be shown as a Deferred Revenue liability, offset by cash on the balance sheet.)

 

[ROE]

Just to throw devil advocate, would TPM be a better stock to buy
I was close to buy TPM under $7 but still hesitance and want cheaper price closer to $6 so I missed the rally heheh, was hoping AGM wasnt upbeat so it get closer to $6

TMP has all the infrastructure and similar grow profile without the head ache and stable management and David Teoh is in charge and steady the ship, he is knowned to run a very tight ship and keep good people close

plus his family fortune is link with TPM success much like Graham Turner at FLT so what is good for him is good for you

 

[galumay]

Just to throw devil advocate, would TPM be a better stock to buy
I was close to buy TPM under $7 but still hesitance and want cheaper price closer to $6 so I missed the rally heheh, was hoping AGM wasnt upbeat so it get closer to $6

TMP has all the infrastructure and similar grow profile without the head ache and stable management and David Teoh is in charge and steady the ship, he is knowned to run a very tight ship and keep good people close

plus his family fortune is link with TPM success much like Graham Turner at FLT so what is good for him is good for you

Maybe, maybe not! I don't have the same admiration for Tech, although my dislike for him is borne of his disdain for customers and customer service and the business model employs. Cheap and nasty! I am probably letting my bias cloud my judgement, in a sense I am too close to the business being directly involved in IT & the NBN in my own business.

I wouldn't have owned shares in any of the businesses in this sector based on my knowledge of them, the good ones have all been swallowed up by the big 4 or 5 players as a result of poor government policy. As posted previously I reluctantly bought into VOC only because at the low $4 mark I felt there was almost certainly value to be found.

 

[Klogg]

Just to throw devil advocate, would TPM be a better stock to buy
I was close to buy TPM under $7 but still hesitance and want cheaper price closer to $6 so I missed the rally heheh, was hoping AGM wasnt upbeat so it get closer to $6

TMP has all the infrastructure and similar grow profile without the head ache and stable management and David Teoh is in charge and steady the ship, he is knowned to run a very tight ship and keep good people close

plus his family fortune is link with TPM success much like Graham Turner at FLT so what is good for him is good for you

Vaughan Bowen (founder of M2) owns a decent amount of M2 stock - and he installed Geoff Horth as CEO of M2 a while back (he was COO previously).

TPM is a great business, and Teoh one of the best managers around. And to be completely honest, I see opportunities in both companies. However, it is because of the potential for huge operating leverage and greater opportunity set to reinvest in the business that I'm attracted to Vocus.

A network utilised at ~30% (at most) along with the NextGen asset at 10% means very similar fixed costs, but the ability to double, if not triple revenues longer term.

Great question though - I did ask myself this a few times.

 

[ROE]

Maybe, maybe not! I don't have the same admiration for Tech, although my dislike for him is borne of his disdain for customers and customer service and the business model employs. Cheap and nasty! I am probably letting my bias cloud my judgement, in a sense I am too close to the business being directly involved in IT & the NBN in my own business.

I wouldn't have owned shares in any of the businesses in this sector based on my knowledge of them, the good ones have all been swallowed up by the big 4 or 5 players as a result of poor government policy. As posted previously I reluctantly bought into VOC only because at the low $4 mark I felt there was almost certainly value to be found.

Fair enough I dont have holding in either and havent been following it for a while
Last Telco play was TLS $2 ish and out $4 ish

I been with iinet internet for last 11 years and dont have an issue with them why I never bother buying iinet share is another sorry story

but there are so many oppotunities in the market you cant capture everything

 

[MrChow]

Big thank you for the posts in reply to and since my question.

I have been doing some preliminary research on VOC and didn't realise how complicated telecommunications businesses are.

Planning to listen to the AGM webcast in full (2 hours).

 

[JTLP]

Last of a big seller getting out? Ceasing to be a substantial holder submitted a few days ago. Just a thought.

 

[MrChow]

Anyone have a breakdown of Earnings by Division going forward?

My extremely rough estimate is a pretty even 3 way split between infrastructure / corporate / residential but any more accurate info would be appreciated (How $430m EBITDA is divided for example).

 

[mcgrath111]

Didnt like seeing that $4 mark get broken, as it leads the door open to how low can you go.

Net avg price now at $4.25; might have to wait until Feb for the results and shut my eyes and tryst in the fundamentals until then.

 

[JTLP]

If you thought in the $4s was cheap, you can grab some at $3.85! TPM also had a rough day...not a great deal of love for these 2nd tier players.

 

[Triathlete]

If you thought in the $4s was cheap, you can grab some at $3.85! TPM also had a rough day...not a great deal of love for these 2nd tier players.

It might even get to $3 yet..from a quick glance....time will tell though..!!

 

[mcgrath111]

Would anyone be able to provide me a brief synopsis into the expected 5g by 2020 and the potential impacts that this would play one VOC, particularly given 5g would be substantially quicker than NBN.
How would this play out for VOC's infrastructure?

 

[So_Cynical]

particularly given 5g would be substantially quicker than NBN. How would this play out for VOC's infrastructure?

5G will be faster than the speed of light and offer unlimited capacity....amazing.

 

[galumay]

particularly given 5g would be substantially quicker than NBN.
How would this play out for VOC's infrastructure?

See above! I think you might have fallen for Telstra's spin, or the propaganda of the luddites that support the disaster that is the Turnbull mix of 19th C & 21st C technology!

Wireless has its place, and better wireless is good, but its not replacing fibre anytime in the forseeable future. All the backhaul is still fibre too.

 

[mcgrath111]

Sold out today, for a minuscule profit.

Nothing to do with VOC, I had just been looking at the $ amount of my holding and it was far too much in regards to too many eggs in one basket - due to averaging down during the dip.
Ah well, maybe's it's a question to chuck on the beginners thread.
Lesson learned, and cash thankfully not burned.

 

[galumay]

Sold out today, for a minuscule profit.

Nothing to do with VOC, I had just been looking at the $ amount of my holding and it was far too much in regards to too many eggs in one basket - due to averaging down during the dip.
Ah well, maybe's it's a question to chuck on the beginners thread.
Lesson learned, and cash thankfully not burned.

What was the lesson learned?! (Not being smart, genuinely interested.) Averaging down into VOC seems a sensible thing to do if you were holder with available capital when it dropped so hard recently. It certainly prompted me to take a position at around $4.20.

I get that you might be concerned with the position size as the share price recovered, but why not just sell down again to your original position size, or one that you were comfortable with?

 

[So_Cynical]

Averaging down into VOC seems a sensible thing to do if you were holder with available capital when it dropped so hard recently. It certainly prompted me to take a position at around $4.20.

My average holding price is $2.11, i averaged up - and happy i did.

 

[mcgrath111]

What was the lesson learned?! (Not being smart, genuinely interested.) Averaging down into VOC seems a sensible thing to do if you were holder with available capital when it dropped so hard recently. It certainly prompted me to take a position at around $4.20.

I get that you might be concerned with the position size as the share price recovered, but why not just sell down again to your original position size, or one that you were comfortable with?

Lesson learned well to a cetain extent, that I should have a certain amount of capital allocated and not go beyond that point.

If im honest, at one stage therr I had about 90% of my cash in VOC.
I could have just lowered my position, yet didnt feel that a holding @4.24 was a true bargain. Also it was more of a trigger pulled quickly situation, in which I thought I had some understanding into telco, yet the deeper I got; the less I realised I knew about the industry / yet was already invested.

I guess theres no science to averaging down, just whatever you feel comfortable with, yet this pushed my comfort levels.

Thought / feedback on how you Galumay and contrarian deal with averaging down would be appreciated.

Sent from phone / excuse more poor grammar than usual.

 

[galumay]

Thought / feedback on how you Galumay and contrarian deal with averaging down would be appreciated.

Ok, 90% invested in one company puts some perspective on your comments! I think I would agree there is a lesson to be learnt there, although if you were certain enough of something then it might be a single path to great wealth creation!!

So far I have only averaged down where I was convinced the business was investible when I made the initial entry, and where I considered the drop in price was an over-reaction to changed circumstances. (my involvement in the CR for SGH was an exception.) I have done very well out of averaging down into businesses like NWH & CDA. I guess there might come a point where I felt I was over invested if the price recovered strongly and made the business a big % of my portfolio - but it would be very dependent on my analysis of the business, size of the position alone wouldnt make me sell down.

CCP, UOS and DDR have become much bigger positions than my average, but I have no interest in selling down to reduce size. (and they are not businesses I averaged down into, just businesses I accumulated where ever Mr Market priced them lower than I valued them and I had capital available.)

Where I have resized the position I did so because I wanted to free up capital for another opportunity.

 

[mcgrath111]

Ok, 90% invested in one company puts some perspective on your comments! I think I would agree there is a lesson to be learnt there, although if you were certain enough of something then it might be a single path to great wealth creation!!

So far I have only averaged down where I was convinced the business was investible when I made the initial entry, and where I considered the drop in price was an over-reaction to changed circumstances. (my involvement in the CR for SGH was an exception.) I have done very well out of averaging down into businesses like NWH & CDA. I guess there might come a point where I felt I was over invested if the price recovered strongly and made the business a big % of my portfolio - but it would be very dependent on my analysis of the business, size of the position alone wouldnt make me sell down.

CCP, UOS and DDR have become much bigger positions than my average, but I have no interest in selling down to reduce size. (and they are not businesses I averaged down into, just businesses I accumulated where ever Mr Market priced them lower than I valued them and I had capital available.)

Where I have resized the position I did so because I wanted to free up capital for another opportunity.

My initial thinking was what you outlined, but I should look at writting out my own '10 not so stringent commandments for investing'.
Appreciate your feedback.