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Vocus Group drops dividend as profit falls 16pc

Morningstar News Team  |  22 Aug 2018Text size  Decrease  Increase  |  
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satellite dish telco telecommunications media tv Vocus Group drops dividend

Telecommunications company Vocus Group (ASX: VOC) has reported $127.1 million full-year underlying net profit after tax, down 16 per cent on 2017 due to increased depreciation and amortisation as increased capex flows through. 

Management announced it will not pay a final dividend due to competing demands for capital investment across the business, in particular the Australia-Singapore cable, and its focus on reducing leverage.  

“The actual result was in line with guidance and expectations. But what’s very important is that the new CEO has outlined a cogent plan for turning around this company," says Morningstar equity analyst Brian Han. 

"It’s good to see that he’s going to firstly simplify the business and secondly chase market share, because its market share in the Australian enterprise telecom market is very low relative to the size of its fibre assets around the country," he says. 

Han believes the company is well placed for the future. “The cash flow performance is good and the balance sheet is improving because of that. This company has been going through some challenges and digestion problems caused by a string of acquisitions. However, the new CEO appears to have a handle on the situation in terms of steadying the ship. There is certainly the potential for market-share growth and stock price appreciation.” 

According to group managing director and CEO Kevin Russell, the result has been achieved during a period of significant internal change and challenging market conditions. 

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Russell outlined the company’s expansion plans, saying, “Vocus’ primary focus going forward is growth. Our market share is low relative to our fibre and infrastructure assets. Our priority is to leverage these assets to maximise profitable growth within our core Australian and New Zealand infrastructure-focused businesses. Our target is to double revenue from these businesses over the next five years.” 

A key focus of the company going forward is building the right team to deliver this growth. “A number of highly experienced executives are joining Vocus in the coming months who believe in the opportunity and who know how to win in the market,” says Russell. 

Vocus also closed an upsized bank facility in June, giving it the flexibility to pursue its plans without having to divest any assets. 

The telco's share price was trading at $2.66 at time of publication, below Morningstar’s most recent fair value estimate of $2.90, as of 21 August 2018 prior to the result.

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Roger Balch is a freelance journalist working for Morningstar Australia

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

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© 2021 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'regulated financial advice' under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information, refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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