vocus announces capital raising at $1.63, page-7

The statements of cash flow indicate that VOC tends to generate significant cash from operations, but that cash is quickly used up in investing and financing activities. The former is a product of acquisitions and laying of fibre (according to the last couple of presentations the company has spent an estimated $8.1 million in the FY12 on dark fibre capex - with EBITDA for the full year estimated around $16 million, this is a very significant amount). The later (financing) is largely due to the accelerated pay down of the IRU liability, which the company counts borrowings.

So, we have a highly profitable company that is growing so aggressively that they are in fact cash flow negative. This is fine whilst we have the calibre of management in place to continue generating high rates of return on the aggressive growth, but if they slip then the value of the company goes with them.

It is unfortunate that VOC needs to raise capital with the current state of the market - it is significantly dilutive to issue at this price, however given the calibre of our management team and the prospect of increasing margins into the future, I will be taking part in the SPP. I believe raising capital now is a far superior option to taking on more debt at this time.

I just hope the money is spent on continued margin-fattening capex as promised and not on some overpriced acquisition (read BGL!). Happily, management have to date avoided such costly mistakes.