Ran some numbers on Vocus and thought I would share them here....

Ran some numbers on Vocus and thought I would share them here. Basically the intrinsic value from the DCF model is $3.45 per share and given current share price is $2.77, this implies an upside of potentially 24.69%. However, this model is based upon on what I would call optimistic expectations for Vocus. The value shown is merely a reflection of some idealistic assumptions. To be honest, I have much lower expectations and share price value.

Key notes in projections:
- Revenue and EBITDA are met for FY17.
- Revenue growth for FY18 onwards is at the top end of market expectation i.e. FY18 revenue growth is 8% for compared to market expectation of – 9% (Morningstar consensus).
- Operating Margin (EBIT) improving from FY17 of 13.8% to 20%. This is to represent improving operating efficiencies from synergies. In FY21 and perpetuity, operating margin will be 20%. This is slightly below FY14 and FY15 however factors in some deterioration in AMPU for NBN due to increasing costs in the market and the NBN tax. Really, improving the margin to 20% is super generous here.


My forecast




Interesting note, if you compare this rather optimistic model to the model supplied by Roger Montgomery you will see a vast difference in expectations. The model provided is market expectations from UBS, Goldman etc and they expect EBITDA in FY20 to be $352m compared to my model in FY20 of $562m. This is a rather dire forecast from the market and is roughly a difference of $210m of EBITDA compared to my model. For comparison purposes, my margin is estimated to be 27% compared to insto of 18.7%. If my model is showing a share price of $3.45 per share based on overly optimistic assumptions then one must deduce what share price the market makers are expecting? Especially if their EBITDA is to be $210m lower compared to my model? This may explain the increased level of shorting and also hopefully provides some HC with insight into the insto's thought process and expectations. They could be wrong, time will tell.


Market Expectation