Why the Vocus (ASX: VOC) share price dropped 2.74% (strategy update)

This article was originally published at MF & Co. Asset Management.

Why the Vocus share price dropped 2.74% (strategy update)

Vocus Group Limited (ASX VOC) released a strategy briefing around its planned three year turnaround. The VOC share price declined 2.74% to $3.20 off the back of the news.

Vocus Group said it had planned and was executing a three year turnaround that would focus on its core business of network services across Australia and New Zealand. It reaffirmed its EBITDA FY19 guidance and provided guidance for FY20, both of which are in the same range.

About Vocus Group Limited

Vocus Group Limited (ASX VOC) is an integrated telco operating across Australia and New Zealand. The company was formerly known as Vocus Communications Limited and changed its name to Vocus Group Limited in December 2016. Vocus Group Limited was incorporated in 2008 and is based in Melbourne, Australia.

Vocus Brands and products

Vocus offers services under a number of different brands

  • fiber optic cable network services under the VOCUS communications brand;
  • business communication and technology solutions under the commander brand;
  • IP voice solutions under the engine brand;
  • and telecommunication and insurance products under the dodo brand.

The company also provides broadband solutions under the iPrimus brand; and utilities services, such as energy services.

Turnaround strategy features

“We are simplifying Vocus into three independent business units, each of which has different opportunities,” said Vocus Group MD and CEO Kevin Russell. “We are clear that our core business, Vocus Network Services, has untapped growth potential and an outstanding market opportunity.”

Vocus Group(ASX VOC)-operating business

Why is Vocus so confident about Network?

  • Opportunity to garner a higher share of the $9.6 billion market across connectivity, network security, voice and collaboration. Current Vocus share is 6%
  • Competition weighed under by complex product portfolios and impending costs of IT and customer facing development; their core consumer business is facing challenges
  • All ANZ mainland capitals are connected to Asia; Vocus’ inter-capital network is the only meaningful alternative to Telstra
  • Demand growth propelled by digitisation, automation, AI and machine learning
  • Fast-growing cloud demand, from both providers and consumers
  • Leading fibre assets connecting Australia with Asia

Vocus Retail

The company’s retail business is also facing turnaround pressures, as also market headwinds due to legacy voice products and the transition of customers to lower margin NBN products.

A strategy is afoot to return the business to revenue and profit growth in FY22. A key pillar of this strategy is to deploy a low cost digital operating model and move away from legacy systems. Vocus also aims to secure market advantages by bundling energy and broadband. Another move is to refocus the Dodo, iPrimus and Commander brands into clear cut segments.

Vocus Group (ASX VOC)-vocus retail

Vocus New Zealand

The business is performing strongly, and is well-positioned for further growth, the company said.

Vocus Group (ASX VOC)-market share

The company estimates the NZ telco market at $5.4 billion, providing significant market share opportunity for its core telco products through leveraging network reach and capability. This would be possible through brand and product positioning and network economics.

Vocus guidance

Vocus Group expects underlying EBITDA for FY2019 to be in the range of $350 million to $370 million. For FY2020 the underlying EBITDA is expected to remain unchanged at 2019 level of $350 million to $370 million.

Vocus Group (ASX VOC)-guidance

Our takeaway

The market has not been kind to the VOC share price, which is off substantially from its 52-week high of $4.9.

Vocus Group (ASX VOC)-ratio

As a result, VOC’s valuation metrics are highly competitive in the context of the sector.

With the strategy refocus, and delineation of its business segments, there might be options in the future for divestment.

Given these factors, the outlook for the company is generally positive.

Henry Fung is a Partner Managing Director and co-founder of MF & Co. Asset Management. He is a highly experienced equities, derivatives and financial markets professional with over 12 years of experience. Henry specialises in building trading algorithms & systems, quantitative & qualitative analytics across macroeconomic, fundamental and technical disciplines and currently runs the MFAM VPAC AU/US models portfolios. The management Partners and Adviser team have decades of experience between them, with experience from major Investment Banks and Brokers. Their Advisers are highly experienced, having dealt with some of the wealthiest clients in Australia.

Categories: Australian Stocks, New Zealand Stocks

Tags: , , , ,

%d bloggers like this: