Vocus Group drops dividend as profit falls 16pc
Telco company Vocus Group has announced it will not pay a final dividend due to competing demands for capital investment across the business
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.
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
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