VOC - Vocus Group

[McLovin]

Net foreign exchange gain/loss, note 5 of the accounts. For some resason they report it under revenue rather than separate it out after PBT.

It's unhedged. Different accounting standard 121 v 139. That also explains why the number jumps around so much.

It would be interesting to ask management why they are unhedged, especially with the AUD so high. That being said, the $22m USD liability at December 30 is probably looking a fair bit smaller now!

 

[prawn_86]

It would be interesting to ask management why they are unhedged, especially with the AUD so high. That being said, the $22m USD liability at December 30 is probably looking a fair bit smaller now!

I have actually talked to the CFO about this on a professional level. They only deal with banks (i work for a broker) but it seems the advice they are getting from their banks may be a bit off the mark...

 

[McLovin]

I have actually talked to the CFO about this on a professional level. They only deal with banks (i work for a broker) but it seems the advice they are getting from their banks may be a bit off the mark...

Speak to him again. Tell him the purpose of financial statements is to give the company the lowest cost of capital. A P&L that jumps around all the time because of unhedged FX positions is not conducive to that end.

He'll either hang up on you or give you the FX work!

 

[Nutmeg]

It's unhedged. Different accounting standard 121 v 139. That also explains why the number jumps around so much.

It would be interesting to ask management why they are unhedged, especially with the AUD so high. That being said, the $22m USD liability at December 30 is probably looking a fair bit smaller now!

I understand that VOC now has no debt.

 

[McLovin]

I understand that VOC now has no debt.

Correct. However, debt is a form of liability, specifically interest bearing. The company still has non-interest bearing USD and AUD liabilities.

 

[craft]

I understand that VOC now has no debt.

VOC have no Bank Debt - The debt obligation on the balance sheet is the contractual payments for the IRU's. These obligations run through to Aug 2016 and are denominated in US$

It's unhedged. Different accounting standard 121 v 139. That also explains why the number jumps around so much.

It would be interesting to ask management why they are unhedged, especially with the AUD so high. That being said, the $22m USD liability at December 30 is probably looking a fair bit smaller now!

It is my understanding that they are hedged. (refer note 32 from the annual). I cant see that they would have any foreign income. so the FX movements could only be from hedging their IRU commitments.

 

[McLovin]

It is my understanding that they are hedged. (refer note 32 from the annual). I cant see that they would have any foreign income. so the FX movements could only be from hedging their IRU commitments.

The change in the value of those hedging contracts is shown as other comprehensive income. My understanding is that the revenue item relating to FX contracts represents the change in AUD value of the unhedged portion of foreign currency denominated monetary assets and liabilities. Once an item is hedged then there is no need to account for changes in the prevailing FX rate because the rate is already locked in, hence it's accounted for below the line. Maybe I am wrong.

Wouldn't those IRU contracts need to be M-t-M each reporting period?

 

[craft]

The change in the value of those hedging contracts is shown as other comprehensive income. My understanding is that the revenue item relating to FX contracts represents the change in AUD value of the unhedged portion of foreign currency denominated monetary assets and liabilities. Once an item is hedged then there is no need to account for changes in the prevailing FX rate because the rate is already locked in, hence it's accounted for below the line. Maybe I am wrong.

Wouldn't those IRU contracts need to be M-t-M each reporting period?

The most that I can make of things is that the FX amounts included in the P&L must have been designated as ineffective hedges. All a bit hard to follow really. Looking at the FX contracts in the annual report, I don't see a lot of risk arising from them- seems like a legitimate attempt to hedge the IRU commitments. Best to look through the accounting treatment of FX me thinks for a fuller picture.

 

[Nutmeg]

VOC have no Bank Debt - The debt obligation on the balance sheet is the contractual payments for the IRU's. These obligations run through to Aug 2016 and are denominated in US$




It is my understanding that they are hedged. (refer note 32 from the annual). I cant see that they would have any foreign income. so the FX movements could only be from hedging their IRU commitments.

What's an IRU commitment? And how does it impact on the balance sheet beyond being a non-interest bearing debt?

 

[craft]

What's an IRU commitment? And how does it impact on the balance sheet beyond being a non-interest bearing debt?

Go here
http://www.asx.com.au/asx/statistics/announcements.do
read the presentations and reports for VOC – all will be revealed.

 

[Nutmeg]

Anyone know what's going on with VOC today? It's share price as I write is up over 11%.

 

[skc]

Anyone know what's going on with VOC today? It's share price as I write is up over 11%.

I am reasonably certain it is purely due to me having sold them last week.

 

[craft]

I am reasonably certain it is purely due to me having sold them last week.

What are you selling today?

 

[Nutmeg]

Of course, the surge in VOC's share price needn't be due to anything meaningful. It remains seriously undervalued in my view.

 

[skc]

What are you selling today?

Lol. Sold some RQL today...

 

[VSntchr]

Just put an order in for 1,000,000 RQL.

LOL.

SP now up 17%!!!

 

[craft]

It remains seriously undervalued in my view.

What's an IRU commitment? And how does it impact on the balance sheet beyond being a non-interest bearing debt?

? ? ?

 

[Joe Blow]

Of course, the surge in VOC's share price needn't be due to anything meaningful. It remains seriously undervalued in my view.

Hi Nutmeg, can you please outline why you believe VOC to be undervalued?

What are you selling today?

Lol. Sold some RQL today...

Just put an order in for 1,000,000 RQL.

LOL.

SP now up 17%!!!

Back on topic please everyone! Discussion of VOC only in this thread.

 

[Nutmeg]

? ? ?

Perhaps my question would have been better phrased had I written: how does the IRU commitment impact on VOC's valuation. As far as I can tell, VOC's IRU commitment is really merely the rent that it pays for the capacity on the cable that it then on-sells. At that same time, VOC's business is precisely this renting and on-selling of capacity to end-users like Vodaphone. In that context, it is not really a balance sheet liability capable of giving rise to a liquidity event like bank debt is - and that was the context in which this issue first arose. My original point was simply that VOC is a stronger company now because it has no bank debt than it was when it was trading at over $3.00.

 

[Nutmeg]

Hi Nutmeg, can you please outline why you believe VOC to be undervalued?

If investors were prepared to own VOC at over $3.00 last April, are VOC's business fundamentals and prospects any less favourable now that it's trading on a P/E of 11.5, reported a 66% half year rise in NPAT, has no bank debt, has a top management team and its future prospects for growth have improved even further than they were back in April? Of course not. The investment case for VOC's worth at $3 last April remains just as valid then as it is now that it is trading at $1.93. In fact, it is more so.

Of course, that is not to say that I would have bought VOC at $3.00. At that level, it didn't then and doesn't now offer any margin of safety. Still, if I had, I am reasonably confident that, providing I held on to it, I wouldn't lose money.