VOC - Vocus Group

[ROE]

http://www.afr.com/street-talk/vocu...owing-failed-leadership-spill-20161011-gs068r

Been following the stock but haven't bought just observing for now

 

[craft]

Good to see that Spence is on board – I suspected this allegiance because of his background (Ozemail, Commander etc) but he has spent some time in VOC so wasn’t sure.

Spence is also a director in another company I have an interest in so its pleasing to see him making what I think is appropriate moves.

Interesting that Spencely was requested to resign. For me it’s good that this is now definitive.

The merger of equals was very unequal; Effectively Spencely and Grist failed to get minority VOC shareholders a control premium for VOC. But they timed their personal sales prior to the dawning of lack of control pretty well. Interestingly no damage to their reputations from the faithful who are jumping ship in fear of MTU management. Reality - MTU management is far smarter!! Yep we will have to endure some market weakness (opportunity) whilst VOC/AMM faithful depart but MTU shareholders got control of VOC without paying a single cent of control premium - If MTU had launched a takeover of VOC we would have had to pay a lot more.

 

[craft]

Hers some details traditional VOC and AMM should maybe consider before selling.

MTU listed 29/10/2004 at 25 cents. Until they delisted as part of the VOC deal, the share price increased at a compound rate of more than 40% p.a. for 11 Years

They paid out ~$1.40 in fully franked dividends.

They got VOC/AMM without having to pay a control premium.

Yes it is different management you will have to get used to but the VOC/AMM assets are still the same and the operational leverage is increased by the combination of MTU assets and sales force.

Proven (longish term) wealth creative management team for shareholders with vast experience in business combination implementation. Actually Bowan the entrepreneur passing the CEO reigns to Horth for operational implementation was the makings of MTU. VOC doesn’t need three entrepreneurs in the form of Grist, Spenceley and Bowan as industry consolidation has just about run its course - It does need a good operational CEO.

Actually second thoughts – VOC/AMM management are jumping a sinking ship – you had better follow straight away at any price before you lose the lot! Sell Sell Sell. The technical are down down down, Just a matter of time before its added to Bogo's list of failed stocks.

Not to mention potential industry competition and profitability developments are a real risk.

 

[dpgrubesic]

Never a good sign when the top level is jumping ship

 

[Klogg]

H
Yes it is different management you will have to get used to but the VOC/AMM assets are still the same and the operational leverage is increased by the combination of MTU assets and sales force.

On this point - I'm looking for utilisation rates on their fibre network, but can't seem to find it. They reported a 76% utilisation rate for data centers in the FY16 1H presentation, but nothing on the network recently.

The most recent I can find is a 14.5% utilisation rate (ridiculously low) in FY15 1H on their australian fibre network. With these assets, they could essentially JUST focus on selling/maintaining the network and really crank up the operational leverage. Pair this with the Monthly Recurring Revenue figures quoted in the recent Investor Presentation in Corporate sales and one can understand why the sales team is increasing by ~35%...

It seems whilst Vocus were building/acquiring their network, they weren't making the most out of it... (or I'm mis-reading something). The M2 team must be licking their lips.

 

[craft]

On this point - I'm looking for utilisation rates on their fibre network, but can't seem to find it. They reported a 76% utilisation rate for data centers in the FY16 1H presentation, but nothing on the network recently.

The most recent I can find is a 14.5% utilisation rate (ridiculously low) in FY15 1H on their australian fibre network. With these assets, they could essentially JUST focus on selling/maintaining the network and really crank up the operational leverage. Pair this with the Monthly Recurring Revenue figures quoted in the recent Investor Presentation in Corporate sales and one can understand why the sales team is increasing by ~35%...

It seems whilst Vocus were building/acquiring their network, they weren't making the most out of it... (or I'm mis-reading something). The M2 team must be licking their lips.

Klogg you point is too close to the key driver for public discussion NIMBI

Lets talk about implementation risks instead or better still conspiracy theories!

 

[Ves]

The most recent I can find is a 14.5% utilisation rate (ridiculously low) in FY15 1H on their australian fibre network. With these assets, they could essentially JUST focus on selling/maintaining the network and really crank up the operational leverage. Pair this with the Monthly Recurring Revenue figures quoted in the recent Investor Presentation in Corporate sales and one can understand why the sales team is increasing by ~35%...

Yep, very long-term this is what will happen. But since there is a big shortage of government funding for vital infrastructure companies like Vocus will keep building additional networks under cities and cable connections under the sea. Once they're built they cost bugger all to maintain. I assume because interest rates are so low they're very easy to finance, and the cheap capital will let these companies ride out the ramp up period until the operational leverage starts kicking in. Also having the retail cash cows from the MTU tie-up will definitely help servicing the balance sheet.

The big question for me is - since the old Vocus / AMM board members are not going to be as big a part going forward, how does this impact the infrastructure side of the business? I assume they see this as their major growth avenue, especially after doubling down with the NextGen acquisition. Do the MTU board members agree with this or has the focus changed again?

 

[craft]

The big question for me is - since the old Vocus / AMM board members are not going to be as big a part going forward, how does this impact the infrastructure side of the business? I assume they see this as their major growth avenue, especially after doubling down with the NextGen acquisition. Do the MTU board members agree with this or has the focus changed again?

NextGen filled a missing link cheaper than it could be built for. I hope they don't continue to build excessively, Fill the gaps and niches yes but beyond that the chance of building eventual uneconomic infrastructure has got to be high from this point.

Bit of a problem of the commons though because if others continue to build it will still impact margins even if you don't play, but at least you wont have the eventual write offs as well.

 

[Ves]

NextGen filled a missing link cheaper than it could be built for. I hope they don't continue to build excessively, Fill the gaps and niches yes but beyond that the chance of building eventual uneconomic infrastructure has got to be high from this point.

Bit of a problem of the commons though because if others continue to build it will still impact margins even if you don't play, but at least you wont have the eventual write offs as well.

Also good points - there is always the potential for over-stretching their networks.

Whether it be MTU, AMM or VOC, these guys have always been super-active either building something or buying something. I don't see it as being in their nature to sit on their hands waiting years for their network utilisation to grow (as much as this might be a decent option). Eyes wide open in that respect.

 

[craft]

Whether it be MTU, AMM or VOC, these guys have always been super-active either building something or buying something. I don't see it as being in their nature to sit on their hands waiting years for their network utilisation to grow (as much as this might be a decent option). Eyes wide open in that respect.

Yep - two of the main drivers have now gone though. Hopefully this was the issue!

 

[Klogg]

Yep, very long-term this is what will happen. But since there is a big shortage of government funding for vital infrastructure companies like Vocus will keep building additional networks under cities and cable connections under the sea. Once they're built they cost bugger all to maintain. I assume because interest rates are so low they're very easy to finance, and the cheap capital will let these companies ride out the ramp up period until the operational leverage starts kicking in. Also having the retail cash cows from the MTU tie-up will definitely help servicing the balance sheet.

The big question for me is - since the old Vocus / AMM board members are not going to be as big a part going forward, how does this impact the infrastructure side of the business? I assume they see this as their major growth avenue, especially after doubling down with the NextGen acquisition. Do the MTU board members agree with this or has the focus changed again?

Yep - two of the main drivers have now gone though. Hopefully this was the issue!

Exactly my thoughts on the subject - I'm just a little slower than the two of you :
Sifting through some media noise, I read this today:
"On the available evidence, the schism doesn’t suggest a strategic difference of opinion between the Vocus/Amcom and M2 camps. The former was oriented to fixed infrastructure, the latter towards the retail (consumer and small business) segments."

Not sure how reliable this is, but it would seem the infrastructure vs retail/sales was the problem, as suggested. Also backed up by this.


IIRC, the NextGen acquisition was quoted to cost over $1bn in capex, yet they bought it for $800m odd, with roughly $20m options on other projects (Darwin to Port Headland and Perth to Singapore). Seems like a no-brainer if you can wrap it up in the services Vocus offer.


Finally on the private fibre network - I really feel that most underestimate how critical data transfer is becoming. What was initially housed in company-owned Data Centers (DCs) is being farmed out to AWS/Microsoft DCs at an insanely fast pace (or at a minimum to 3rd party DCs that are leased, due to economies of scale) - the growth in cloud services shows this (see ASZ, DTL, RHP, etc.). The second level impacts then move out to telecommunications and data transfer requirements.
What's more, this gets coupled with software development that evolves quite easily to allow for the increased limits in data transfer, memory availability and load-balancing between multiple sites with ease (basic AWS/Azure JSON templates allow for this).

Of the clients I've worked with, none would even consider putting up with the contention rates proposed by the current NBN pricing (if RSPs are to make a profit, that is). They'll gladly pay up thousands extra to have the right connection - it hits productivity too hard otherwise.

 

[Ves]

Finally on the private fibre network - I really feel that most underestimate how critical data transfer is becoming. What was initially housed in company-owned Data Centers (DCs) is being farmed out to AWS/Microsoft DCs at an insanely fast pace - the growth in cloud services shows this (see ASZ, DTL, RHP, etc.). The second level impacts then move out to telecommunications and data transfer requirements.
What's more, this gets coupled with software development that evolves quite easily to allow for the increased limits in data transfer, memory availability and load-balancing between multiple sites with ease (basic AWS/Azure JSON templates allow for this).

Of the clients I've worked with, none would even consider putting up with the contention rates proposed by the current NBN pricing (if RSPs are to make a profit, that is). They'll gladly pay up thousands extra to have the right connection - it hits productivity too hard otherwise..

Thanks! This is essentially my thesis for the infrastructure stuff. It's sad that we live in a world where the Government infrastructure that isn't already finished (NBN) is basically redundant for a lot of corporations. It is what it is I guess.

 

[Klogg]

Thanks! This is essentially my thesis for the infrastructure stuff. It's sad that we live in a world where the Government infrastructure that isn't already finished (NBN) is basically redundant for a lot of corporations. It is what it is I guess.

Very true - although if they're willing to take a hit on pricing, it will definitely be usable.

On a completely separate note, I do wonder what the 5G rollout will do once it's ready to go. Telstra released a note stating they achieved 20Gbps on their testing. (Running a speedtest on my phone, I just got 19.5Mbps... That's 1000 times the speed! Also a lot of Netflix.

It's a while away, but the backhaul for that also needs to come from somewhere.

 

[Klogg]

IIRC, the NextGen acquisition was quoted to cost over $1bn in capex, yet they bought it for $800m odd, with roughly $20m options on other projects (Darwin to Port Headland and Perth to Singapore). Seems like a no-brainer if you can wrap it up in the services Vocus offer.

Just clarifying my previous mistake. They're not optional, but conditional payments. NWCS payments come to $54m AUD, ASC to 27m AUD

 

[andy777]

Hi fellow VOC holders/watchers and more,

I just wanted to introduce myself and I hope you don’t mind if I post on here occasionally (after reading your posts for a couple of weeks I feel like I have some understanding of each of your investment philosophies). I have been posting a little under the same user name on HotCopper and put a couple of ideas on Shareidea under my email andrew.mason115@gmail.com . I have found some conversations I have had with other posters to be incredibly useful. Posters I listen to on HC include: Madamswer, Klogg, Travelightor, MarsC and Eternalgrowth. Klogg has been very helpful and suggested I come and have a look at ASF. In particular he commended a few posters to me and I have found your little group to be incredibly insightful (craft, Klogg, Ves, McLovin, galumay, skc and more). A big thanks to Klogg for suggesting this group of excellent posters!

A bit about myself…….. I would label myself a ‘value investor’ in that I am attempting to buy with a margin of safety and aim to hold for a number of years. I have been closely investigating TPG over a number of weeks. However, the valuation differential became too great for me to ignore so I bought VOC a couple of days ago (did post on HC with a brief summary of my hypothesis after the purchase). There may be other stocks we overlap on and if anyone is interested in a complete list of my holdings just flick me an email.

Lastly, I realise my experience is but a fraction of the many great posters on here. Hopefully I can add some small value – I do spend inordinate amounts of time reading announcements/reports. At 34 years of age there may be a few tricks I can learn yet!

Again thanks for the time and effort you all put into your posts, I have been able to take significant value away from this forum.

PS. I have been investing for about 3.5 years now and only recently have HC and ASF come to my attention. Many posts were contrary to my own investing practice and if I hadn’t found the group mentioned on HC and your group on ASF I would have given up on these forums.

Andrew

 

[Ves]

Hi Andy

Welcome aboard. We seem to follow the same group of posters on hotcopper (I post there infrequently as 'vesupria') but I do lurk quite a lot.

Whilst the conversation probably doesn't move nearly as fast over here on ASF, the platform I find is very good for posters who like to make more detailed contributions without having them buried under mountains of speculation / gossip about intra-day movements (the kind that has nothing to do with robust technical analysis).

 

[andy777]

Hi Andy

Welcome aboard. We seem to follow the same group of posters on hotcopper (I post there infrequently as 'vesupria') but I do lurk quite a lot.

Whilst the conversation probably doesn't move nearly as fast over here on ASF, the platform I find is very good for posters who like to make more detailed contributions without having them buried under mountains of speculation / gossip about intra-day movements (the kind that has nothing to do with robust technical analysis).

Thanks Ves, looking at your holdings (or past holdings) it seems that although we probably only overlap on a couple, our target companies and what we consider investable seem similar. I mainly lurk on HC as well! Yep not too worried about intra-day movements either, well unless they are 30% or more. Purely FA myself, but I am interested in how you guys use TA as I know some of you have had success here.

Just wondering if you have been looking at TPG* as well. It doesn't seem to have much of a following amongst this group but does seem attractive on an operational cash flow basis. Just running some numbers but as is typical of a SOL related company, earnings seem rather understated (i.e. strong operational cash flows and high capex that makes earnings look significantly lower when really that money is going towards building future profitability).

* Only own VOC at this stage, but may look at adding TPG depending on price

 

[dpgrubesic]

Anyone else think now is a good time to whilst the price is below 6$?

ASX podcast seem to rate it and it is probably due for a rebound?

David out...

 

[So_Cynical]

Anyone else think now is a good time to whilst the price is below 6$?

ASX podcast seem to rate it and it is probably due for a rebound?

David out...

Yep but 5.50 was better, may never see that again though, a few days makes such a difference sometimes.

 

[Klogg]

Interesting piece on the repricing of CVC charges for the NBN (at the end of the article):
http://www.theaustralian.com.au/bus...s/news-story/323f3e476c91c45a495c2ae8d8059f8d

NBN Co boss Bill Morrow telling a senate estimates committee on Tuesday that the current model will be revised next year and CVC prices could drop as low as $10 per unit as data usage ramps up. Retail service providers on the NBN have been paying as high as $17.50 per megabits per second under the current pricing structure.