VOC - Vocus Group

[craft]

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.

Hi Nutmeg, The ??? were because it appeared as though you were making valuation calls without an understanding of IRU's - a pretty simple and integral part of VOC's business.

I don't think VOC has ever had much bank debt to speak of.

The IRU's are a fixed commitment and could indeed lead to a liquidity event if VOC’s revenue drops. Interestingly the same can be said about any lease and there are a lot of companies with significant lease commitments that never see anything more then a brief mention in an obscure note. You could say VOC is pretty transparent in having the IRU commitments on the balance sheet.

Ps. heard a rumour that one of the tip sheets has recently been giving it a pump, might explain why it’s having a spurt today.

 

[McLovin]

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.

That's fairy specious reasoning. If I follow your argument, the value of anything is what someone else is willing to pay for it. It seems as though you're confusing price with value.

 

[Nutmeg]

... The IRU's are a fixed commitment and could indeed lead to a liquidity event if VOC’s revenue drops. Interestingly the same can be said about any lease and there are a lot of companies with significant lease commitments that never see anything more then a brief mention in an obscure note.

But isn't that precisely the point? Woolworths' has significant lease commitments but the prospect that they might become liabilities capable of triggering a liquidity event is probably pretty remote, to say the least.

 

[Nutmeg]

That's fairy specious reasoning. If I follow your argument, the value of anything is what someone else is willing to pay for it. It seems as though you're confusing price with value.

Price is what you pay and value is what you get. No, I appreciate the distinction. I didn't mean to imply that VOC is worth over $3.00 because people were once prepared to pay that much for it. I meant that VOC IS worth $3.00 on a valuation basis which encompasses some of the characteristics that I referred to earlier.

That's my call on this stock, at any rate. Only time will tell if I am right.

 

[McLovin]

But isn't that precisely the point? Woolworths' has significant lease commitments but the prospect that they might become liabilities capable of triggering a liquidity event is probably pretty remote, to say the least.

Yeah but Woolworths doesn't have a single customer who accounts for 25% of their revenues. Apples and oranges to compare the two really.

 

[McLovin]

Price is what you pay and value is what you get. No, I appreciate the distinction. I didn't mean to imply that VOC is worth over $3.00 because people were once prepared to pay that much for it. I meant that VOC IS worth $3.00 on a valuation basis which encompasses some of characteristics that I referred to earlier. That's my call, at any rate. Only time will tell if I am right.

I'm confused, is it worth over $3 or not?

Your assertion seems to be that it was changing hands at $3 on the same fundamentals in April last year it is therefore worth $3. That makes some fairly large assumption about who was buying at $3. They were largely Roger Montgomery blog readers who pushed the price up to those highs.

 

[Nutmeg]

Yeah but Woolworths doesn't have a single customer who accounts for 25% of their revenues. Apples and oranges to compare the two really.

Maybe. But don't confuse the wood for the trees - to mix metaphors. The point is whether VOC's IRUs constitute a real business risk. The fact is that if you're still in the stock at a time when its IRUs look like posing a liquidity event, you've already been in the stock longer than you should.

 

[McLovin]

Maybe. But don't confuse the wood for the trees - to mix metaphors. The point is whether VOC's IRUs constitute a real business risk. The fact is that if you're still in the stock at a time when its IRUs look like posing a liquidity event, you've already been in the stock longer than you should.

You could make that argument about any liability.

I don't think the IRU's pose an imminent risk, even if there was sme loss of custom but I wouldn't dismiss it as not posing a liquidity risk at all.

 

[Nutmeg]

You could make that argument about any liability.

I don't think the IRU's pose an imminent risk, even if there was sme loss of custom but I wouldn't dismiss it as not posing a liquidity risk at all.

Agree.

 

[robusta]

Nice profit guidance and presentation.

http://www.asx.com.au/asx/research/companyInfo.do?by=asxCode&allinfo=&asxCode=voc#headlines

I still hold in mu SMSF is now my largest holding in that portfolio having taken some profits on FGE @ $6.50

 

[herzy]

hey I'm new to this stock and have two (quite dumb) questions - what will the effect of the recent slump in the AUD to USD have on VOC's IRU? And why is the NBN not a threat to VOC?

Thanks in advance!

 

[zac]

hey I'm new to this stock and have two (quite dumb) questions - what will the effect of the recent slump in the AUD to USD have on VOC's IRU? And why is the NBN not a threat to VOC?

Thanks in advance!

The AUD has slumped in large due to fear in the market. Same as last September so the $AUD will definitely bounce back. Given the RBA rate cut that certainly devalued the currency a little but AUD will get back above parity.

Im not sure on Vocus but a large reason why the ASX in general isnt taking off like other markets around the world is due to the high value of the AUD. This makes Aussie goods less competitive and expensive, hence limited growth and upwards movement in the ASX.

If Vocus is a net exporter then a slump in AUD will be good for it, if its a net Importer then it will be bad. Excuse my ignorance on VOC.

 

[robusta]

hey I'm new to this stock and have two (quite dumb) questions - what will the effect of the recent slump in the AUD to USD have on VOC's IRU? And why is the NBN not a threat to VOC?

Thanks in advance!

Will have to check but I think the US exposure is hedged anyway data centres and dark fibre networks are becoming a larger part of the business.

The NBN should be a boon for VOC; increased data centre, dark fibre and international data usage.

 

[VSntchr]

The new fiber that Vocus laid under the Sydney Harbor this week is sure to excite some of the HFT's, as it directly links up the ASX liquidity center!

Apparantly up to 600 customers can use the line, with most of the cost being covered after the first customer...

 

[robusta]

Placement and spp announced, sp off around 10% at the moment I would become interested if the sp falls below $1.70. The growth from these guys is fantastic, just need to keep a eye on cash flow and working capital.

 

[robusta]

Telstra have sold NZ operations to Vodafone, VOC have the data contract with Vodafone, I wonder if this will change.

 

[herzy]

Telstra have sold NZ operations to Vodafone, VOC have the data contract with Vodafone, I wonder if this will change.

Sorry could you explain this in more depth?

 

[robusta]

Sorry could you explain this in more depth?

Vocus has a contract with Vodafone NZ to supply international fibre optic data until 2014

I am not sure if the Telstra sale will result in increased traffic and revenue for Vocus. I think Vodafone NZ is still their largest customer.

 

[herzy]

Good point - I suppose it would. If Vodafone (including Telstra NZ) has increased demand for Vocus' services, it would make sense they service this using Vocus. Depending of course on what Telstra NZ was doing before it was sold...?

 

[robusta]

Good point - I suppose it would. If Vodafone (including Telstra NZ) has increased demand for Vocus' services, it would make sense they service this using Vocus. Depending of course on what Telstra NZ was doing before it was sold...?

That is the problem, maybe there is a clause in the contract to use the existing provider. I have been close to buying VOC at these prices, looks like I have a bit to think about. Vodafone did extend the contract in April.