I've been watching since I sold out at the end of last year. I just can't see any compelling reason to buy in the near term. I don't think there's any compelling case for holding either. I took a punt as it dropped under $3 and then sold with an incredible sense of relief when the bids popped up.
The problems are:
1) The company needs to reduce its debts to reduce debt leverage risk, which means no dividends for probably a couple of years. So there'll be no cash ROI.
2) Nobody quite knows for sure how the things will pan out for infrastructure over the next few years. The value case for specific assets such marine cables and fibre could change substantially for good or evil.
3) Nobody quite knows for sure how the retail industry will pan out either. The profitability equation for the individual subscriber could shift radically.
4) Vocus has established a recent history of nasty surprises. On top of that the people I used to trust left at the end of last year. The new guys have to win my trust before I'm going to chance my money on them, and they haven't made a very promising start.
I see enormous difficulties in retail. The total market - essentially 1 account per household - is growing extremely slowly. In fact without immigration the market would be shrinking. So Vocus is fighting to grow its customer base in what is basically a zero-sum game. Even though data consumption per consumer is growing rapidly, revenue is not. It's hard to recover a per-megabyte rate when customers can switch providers with the submission of a web form if they don't like their bill.
Commercial is a better picture. These are customers who will be prepared to pay for additional services as well as capacity. But sellers are piling into this segment because of the difficulties in retail, and this is going to increase pressure on prices and profits here too.
Infrastructure is better again as that is typically charged by capacity, which is growing rapidly. Also, major trunks are a limited resource so those wanting to buy capacity don't have a lot of options. However the squeeze on profit margins at the supply end is going to ripple through to the carriage prices they are able to pay.
I don't believe that there will be any particular interest in Vocus shares until a positive picture begins to emerge for Vocus as a company, and for the telecoms market as a whole.
If you have the stomach for it, you could try this as a mental exercise (or even an actual one). Sell your Vocus shares. Then take a fresh look and decide, "Do I want to buy them back? At what price?"
VOC Price at posting:
$2.33 Sentiment: Sell Disclosure: Not Held
