Before we proceed with valuation involving growth rates, we have to derive free cashflow for the financial year just passed. It is a more fundamental issue quite apart from growth in future years. Without a starting figure for free cashflow or excess capital as Camden would put it, we cannot even begin with a valuation exercise.
Accordingly, I fail to understand why growth rates would affect the calculation of free cashflow last year. Growth rates will affect levels of free cashflow in the future, but that is a different issue. The simple question is: what is free cashflow for FY 2014, when we have $30m OCF and $31m capex?
Let's dumb it down. We have only one customer in the MLC centre with a satellite office in Newcastle, who is connected to a data centre. Customer has signed a 5 year contract with us. Given that it is a bloody hassle to switch comms provider, we can be reasonably certain this customer will renew, say another 5 years. We have a fixed cost base to service this customer. What is the net present value of the revenue streams from this customer? Would any sane person argue that the cashflow stream from this customer is affected by how we choose to spend to connect another customer?
Furthermore, it is not as if I am a retailer building another shop and hoping that customers will come. With Vocus fibre, we are talking about contracts all signed and dotted before any capex is spent. Morever, I fail to see how my cashflow from the first customer is in any way affected if I choose not to take a second customer (ie no growth, all money back to shareholders).
Lastly, the figures do not lie. Going on last year's capex efficiency figures, the increase in revenue from 2013 to 2014 corresponded exactly to growth capex (you have to estimate growth capex but it is not too difficult). If you take this year's capex efficiency figures, and a rough growth capex from the $31m spend this year, you pretty much know what the increase in revenue would be for 2015 for Vocus pre-NZ acquisition.
VOC Price at posting:
$5.45 Sentiment: Hold Disclosure: Held
