Ann: Becoming a substantial holder, page-33

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10/04/18

10:16

Post #: 32339893
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Originally posted by DeltaHedge ↑

I wouldn't say he is completely wrong but instead slightly right.

Share price is a function of debt.
Enterprise value (EV) = Market Cap + Debt.
EV/EBITDA = (Market Cap + Debt)/EBITDA, excluding preference shares and minority interest.
As a function of enterprise value, the greater debt is then the lower market cap will be. For example if EV is $1b and debt is $800m then market cap would be $200m. If debt was $300m then market cap $700m etc. As debt is reduced, the value is passed from debt holders to share holders.

There is no doubt the entire telco sector is out of flavour and has underperformed the ASX. However, I do agree that Vocus has suffered more depreciation in share value than its competitors TLS and TPM since it has significant debt. Telstra's current share price is more a reflection of a new competitor, TPM, entering the mobile network and also its dividend cut which hurt a lot of superannuation funds. TPM's reduction of share price is a combination of sentiment of the telco sector, and uncertainty surrounding the feasability of its venture into the mobile network.

If VOC didn't have so much debt, it's share price wouldn't have depreciated as hard as TLS and TPM and they wouldn't need to sell off NZ to fund the ASC. The sale process is a function of their high debt levels. If they didn't have $1b in debt then they could easily fund the ASC via a drawdown or cash after operations.

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Yea, i don't disagree with that, but i would add that they expected EBITDA to grow as well, and that hasnt happened because they haven't realized the mystical synergies (now est $90m in 2020).
If EBITDA had grown we wouldnt have this level of concern about debt, it all goes back to the 'integration problems'

VOC Price at posting: $2.31 Sentiment: Buy Disclosure: Held
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Ann: Becoming a substantial holder, page-33

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