Vocus Group Limited
VOC Details
VOC Enters A Scheme Deed with Consortium: Vocus Group Limited (ASX: VOC) is a specialist fibre and network solutions provider in New Zealand and Australia. It operates –Vocus New Zealand (VNZ), Vocus Network Services (VNS), Retail and infrastructure, Operations & Corporate. As of 9 March 2021, the market capitalisation of the company stood at ~$3.10 billion. On 9 March 2021, VOC announced that it has entered into a Scheme Implementation Deed (SID) with a consortium of “MIRA” (Macquarie Infrastructure and Real Assets and its managed funds) and Aware Super Pty Limited (ASL), under which, the consortium will purchase 100% of the shares of VOC at $5.50 per share. The Board is of the view that this proposal is in the best interests of the shareholders of the company. It advises shareholders vote in favour of the Scheme in the absence of a better offer. The deal’s execution is subject to approval by the court, VOC shareholders, and other stipulated regulations. Upon execution of the SID, VOC shareholders will receive $5.50 cash per share. As per the upcoming deal schedule, VOC shareholders will get the chance to vote at a Scheme Meeting due to be held in June 2021. The deal is expected to be implemented by July 2021.
1H21 Results Highlights: On 24 February 2021, VOC announced the completion of its three-year turnaround strategy with VNS driving the firm’s core growth. The recurring revenue (RR) of VOC grew by 2% YoY to $896 million during 1H21 on a pcp basis. The growth was led by VNS, followed by growth in VOC NZ and improvement by Retail business. VNS posted a recurring revenue growth (RRG) of 11% and 8% growth in EBITDA during 1H21 due to higher value contracts with large customers and a growing footprint in the Federal Government market. During 1H21, the Statutory EBITDA increased by 3.8% YoY to $188.1 million on pcp. The company exercised overhead reductions enabling growth in EBITDA and improved operating leverage. It held $36.7 million of operating free cash flows, up by $71% YoY on pcp during 1H21. Its net leverage ratio stood lower at 2.6x during 1H21 vs 2.7x in 1H20. VOC held a cash balance of $44.6 million as of 31 December 2020.
1H21 P&L Results Highlights (Source: Company Reports)
Key Risks: The company is exposed to the risk associated with COVID-19 pandemic. The company is also exposed to economic, environmental and sustainability risks comprising social sustainability.
Outlook: VOC has published underlying FY21 EBITDA guidance of $382-$397 million and expects the net leverage ratio to reduce further. It has revised guidance capex between $185-$200 million and plans to fund the increased capex (of $15-$20 million) by the customers in 2H21. For VNS, it particularly expects RRG of 8% instead of 5% and Underlying EBITDA now expected between 10-12% against 8-12%.
Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)
Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: The stock of VOC gave a positive return of 63.06% in the past nine months and a positive return of 75.72% in the past one year. The stock is currently trading towards its 52-weeks’ high level of $5.45. The stock of VOC has a support level of ~$5.064 and a resistance level of ~$5.763. We have valued the stock using the Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low single-digit downside (in % terms). For this purpose, we have taken peers like Telstra Corporation Limited (ASX: TLS), Hubify Limited (ASX: HFY), Superloop Limited (ASX: SLC), to name a few. We believe that the company can trade at a slight premium compared to its peer median, considering expected growth in recurring revenue and underlying EBITDA for the VNS division and higher free operating cash flows for 1H21. Considering the current trading levels, decent returns in the past nine months and one year, and associated risks of the pandemic and technological changes in the telecom industry, we suggest investors to book profit and give a “Sell’ rating on the stock at the current market price of $5.430, up by 8.599% on 9th March 2021, owing to the update regarding the signing of Scheme Implementation Deed with consortium Of Mira and Aware Super.
VOC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
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