Today the Vocus Group Ltd (ASX: VOC) share price leapt 5% after it released its half-year results to the market for the period ending 31 December 2018 showing net profit down 56% to $16.5 million.
Vocus is a vertically integrated telecommunications service provider, operating in the Australia and New Zealand markets. Thanks to a merger with M2 Group, it is responsible for numerous retail and business telco brands, such as Primus.
Vocus’ Key Results
Vocus reported:
- Revenue up 1% to $974.2 million
- EBITDA down 10% to $168.6 million
- EBIT down 33% to $50 million
- Net profit after tax down 56% to $16.5 million
- Diluted earnings per share down 56% to 2.62cps
- No interim dividend declared.
Management Commentary
“I have great confidence in the strategic growth opportunity for our Company, with the core of that opportunity being in our Australian infrastructure business, Vocus Networks,” Managing Director and CEO Kevin Russell appointed in May 2018 said.
“This is a 3-year turnaround and our Board and leadership team is very clear on the way forward. The turnaround program is well underway, and momentum and change has clearly been established.”
No Plans To Grow NBN Share
Interestingly, after Vocus merged with M2 group, the company which held the dodo and iPrimus brands, the company stated, “the NBN creates significant challenges. The variable nature of NBN pricing is incompatible with the fixed prices paid by end consumers… Consequently, we do not intend to grow NBN share in this market but will focus on optimising the broadband experience for existing customers.”
It is obvious the exponential data usage consumed by consumers thanks to the popularity of video streaming services has resulted in rising data costs for the company due to the lack of submarine cable infrastructure to the USA, which competitors such as Telstra Corporation Ltd (ASX: TLS) and TPG Telecom Ltd (ASX: TPM) currently have in place.
Planning for 5G Future
Vocus stated, “The Optus MVNO deal signed in December gives Vocus the ability to participate in the wireless broadband and mobile market, including the coming 5G environment, and to take advantage of the opportunities in the wireless market across all our brands”.
To put this in perspective, Vocus reported revenue of $30.9 million for the half from mobile, with $28.5 million coming from Consumer segment.
Similar to its problem in the NBN market, Vocus lacks the infrastructure that other competitors have, and with a price war in the mobile sector underway, it seems a tall task for Vocus to make any significant headway into the market in the near future.
Rask Perspective
I agree with Mr Russell that the Vocus Networks business is the best part of the group. Ever since it has merged with M2, it has become an inefficient business that is several steps behind its competitors in the NBN and mobile market. As such, I have no interest in adding this stock to my portfolio.
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