Telstra recut the commission structure and VTG’s margins (then...

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8horse

34,339 Posts.

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22/05/17

09:41

Post #: 24827322
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Originally posted by webbj ↑

Was doing some reading on another stock and stumbled onto this today from Spheria and a January write-up:

Being a telecommunications reseller in recent years has been a fortunate path. Moving forward, we suspect it could be a lot harder in a more competitive environment, where resellers are generally beholden to only one supplier. Vita Group is the other telecommunications reseller, where we believe the market is complacent to the downside risk. If history is any guide, EBIT margins of 8% in FY16 are simply not sustainable when you have one ‘gorilla’ supplier (i.e. Telstra) that is aggressively carving out costs. You only have to go back to 2006/07 when Telstra recut the commission structure and VTG’s margins (then called FoneZone) were crunched from 9% to 6%, and eventually bottomed out below 3%.

The stock was over $3 at the time, sometimes good to look back and see who was putting alternative views then .. and seeing what they might be saying about other things now.

www.spheria.com.au/wp-content/uploads/2016/05/Spheria-small-cap-fund-update-Dec-2016.pdf

edit: for what its worth, they have a pretty confused and negative view on Amaysim (AYS) and I totally agree. A bit like VTG, its single supplier, competitive marketplace and priced for absolute perfection. Wouldn't be surprised to see something similar on that one.

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Telstra recut the commission structure and VTG’s margins (then called FoneZone) were crunched from 9% to 6%, and eventually bottomed out below 3%.

Telstra only wanna squeeze vtg's profit margin, not beat to death.

Historically EBIT bottomed out below 3%. Would be around $20m p.a. At current level of sales.

VTG Price at posting: 94.0¢ Sentiment: Buy Disclosure: Held
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0 Great analysis

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Telstra recut the commission structure and VTG’s margins (then...

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