Vocus Group Ltd (ASX: VOC)

VOC Details

Confirming guidance: Vocus Group’s stock initially surged up 1.8% before slipping by 0.36% on October 23, 2017 with the group’s announcement on confirmation of its FY18 Guidance. VOC expects its revenue to be between $1.9 billion and $2 billion, underlying earnings before interest, tax, depreciation and amortisation of between $370 million and $390 million, and underlying net profit of between $140 million and $150 million. The group found support for the above from growth in its core divisions and financial performance of the business. For 1QFY18, the group increased its East Coast Penetration and has expanded its Direct Sales Teams for the Enterprise and Wholesale segment. VOC also secured 4 out of 4 Federal business tenders in 1QFY18 and two more tenders have been said to be secured in 2QFY18. The momentum in NBN is continuing with 53k new NBN services in 1QFY18 taking total consumer NBN subscribers to 230k and this reflects a 29% growth in 1QFY18. While there has been a fall in subscribers in the legacy brand portfolio, Dodo and iPrimus net growth of 9,100 subscribers in 1QFY18 has been strong. The Australia Singapore cable is also said to be ready for service by 1QFY19.

Net run-rate EBITDA benefit expected by FY20 (Source: Company Reports)
 
Sale of non-core assets: Looking at the interest of the shareholders, VOC has also indicated to sell its New Zealand business and Australian data centres, as identified under a review of non-core assets for the telecommunications business. The group is undertaking this move as per the update provided during its half year results in terms of business transformation. The sale of the New Zealand business has been earmarked for the end of 2017-18 while advisors, which can either be Goldman Sachs or Credit Suisse, are being appointed. VOC has appointed Credit Suisse for the sale of Vocus Australia data centre assets. The group is also progressing well for identifying other non-core assets for potential sale or closure and this is said to include the power business. The proceeds of assets sales are said to be used for reducing debt and balance sheet flexibility.

Vocus has borne the brunt of challenges owing to its M&A moves in FY17 that led to a crash of the stock as investors felt that the company is losing the potential. However, with recent developments, the stock seems to be on a rebound. In last five days, the stock has moved up 15% as at October 20, 2017. We believe that it might be prudent to wait for some more positive developments, and give a “Hold” on the stock at the current price of $2.80

Telstra Corporation Ltd (ASX: TLS)

TLS Details

Boost from ACCC’s decision and targeting opportunities for investment: Telstra’s stock surged up 0.9% on October 23, 2017 with the gains in the sector while ACCC (Australian Competition and Consumer Commission) announced about not declaring mobile roaming. This seems to be a positive news for customers in regional Australia, as people in regional communities are highly dependent on coverage and future technology innovation. It is worth noting that many Australians prefer Telstra in areas with competing coverage owing to quality of network. ACCC is said to undertake a review of the Facilities Access Code for identifying barriers to co-location and infrastructure deployment under measures to improve regional mobile coverage.

Telstra has been a strong investor in regional Australia and leader in mobile telecommunications, and has recently expanded its 4G coverage to reach 99% of the population in 2017. The group has over 9,000 mobile sites across the network including 7,300 4G sites, with more than 1,100 now upgraded to 4GX. The group now expects to see up to $1 billion flow to small towns and regional centres across the country over the next five years through direct investments and co-investments. The group aims to improve the customer experience through working closely with government, industry, the ACCC and regional stakeholders.

TLS in 2017, made a solid progress and delivered on guidance to the market with rise in income, earnings and profit on a continuing or like for like basis. There was a 4.3% rise in total revenue to $28.2 billion while EBITDA was up 2% to $10.7 billion. The group also added 218,000 new retail mobile services and 132,000 new retail broadband services during the year and new NBN connections reached 676,000. Given the potential, we put a “Buy” on the stock at the current price of $3.55

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