thought the result was solid although one or two areas that...

thought the result was solid although one or two areas that piqued my interest:-

- Non cash FX gains (recorded as other income) contributed to a fairly material proportion of EPS. This isnt a critisim so much as from an accounting perspective it was a legitimate "profit" however a few areas to consider: (1) its non cash in the sense no cash is coming in (although to be fair less is going out) (2) is the gain recorded against the whole IRU or a smaller proportion (i.e. how sustainable is such a gain even if AUD continues to approeciate - or will gain have to be reversed if recognised against full remaining IRU liability and AUD falls materially against USD?) [this may be buried in the notes but I cant find it] (3) the AUD is pretty high by historical standards so even if there is more juice left in the lemon (IRU liability) if the AUD falls against the USD then gains will evaporate. For this reason many of the analysts are reporting normalised earnings of circa 11 cents per share. I tend to think as an investor you should discard the FX component and focus on the normalised aspect to earnings. I know that there are plenty of critisims of PER but can provide a good snapshot (shouldnt be used as a valuation technique). On a normalised basis VOC is trading on a PER of 16.
- Lets assume no further FX gains then its going to take a 50% increase in normalised earnings to get to current year EPS. Data usage should continue to drive solid organic growth although will further growth require VOC to take out further IRU capacity, like VOC did at the start of the year? Obviously this will involve a step up in fixed costs which will effect profitability to some extent until usage is on sold to a material extent. New data centres and dark fibre will contribute to growing revenues in FY12 however full recognition of full equity (rather than FY11 WANOS) will obviously temper this a bit. Either way on a normalised basis I dont think VOC will shoot past current fully recognised EPS of 15 cps FOR FY12 (and to do so would be a fantastic result). I think this recognition has partly contributed to the recent sell down of VOC. Lets face it the share price did perhaps get ahead of itself as during the year hitting almost 30 times normalised earings for FY11.
- Admin and other expenses increased faster than revenue. There was a cap raise in the year which added circa 500k (which perhaps you can strip out for next year if no further cap raisings are undertaken) although the same amount of expense was recorded in PCP for cap raising expenses also so why have these costs increasing higher than revenue. This is perhaps a line item that should provide more scalability. The increase in expense may be more than explained by VOCs activity to drive further growth going forward although it would be nice to have more transparancey either way to know (although there may be industry reasons for not doing so?).

Anyway VOC is still a very solid looking company with a compelling growth profile and its nice to see the price coming down to more attractive levels. As a dislcosure given the number of poosts I made earlier on the VOC thread and my change in position, I sold down my holding for average of around 2.60 and hope to re-enter at circa 1.60 (if it gets there).