The Vocus Group Ltd (ASX: VOC) share price rose by 9.6% today after releasing its FY19 report to the market.
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.
Why Vocus Shares Shot Higher
Vocus boasted that its results were in line with guidance across all key metrics.
The telco’s revenue increased by 0.4% to $1.89 billion. Underlying EBITDA, excluding share-based payments of $6.4 million, fell by 2% to $360.1 million (click here to learn what EBITDA means). The EBITDA margin declined by 0.5% to 19%.
Vocus explained that there were a few elements affecting the EBITDA decline.
Its Vocus Networks Services (VNS) business growth was at a lower margin due to one off project revenue and wholesale NBN. There was strong cost reduction in Retail which improved the EBITDA margin percentage despite declining revenue. And the company made investments into people and its capability.
Higher depreciation, amortisation and finance costs impacted the underlying net profit after tax (NPAT), it fell 17% to $105.5 million. Reported net profit fell 44% to $34 million. According to CommSec and Bloomberg, investors were expecting a net profit of around $41 million.
Vocus reported that it ended the financial year with net debt of just over $1 billion and a net leverage ratio of 2.9x, being EBITDA compared to net debt. Its lending covenants allow for up to 3.5x.
Vocus Management Comments
Managing Director and CEO Kevin Russell said: “We have delivered on the immediate priorities outlined at the last result: the right leadership team in place, with the skills and experience to deliver and the re-orientation of our business strategy to capitalise on the strength of our exceptional infrastructure assets. The focus is now on execution of our plans over the coming 24 months.”
Is The Vocus Share Price A Buy?
Vocus increased its FY20 guidance, excluding share based payments of $9 million, for underlying EBITDA from a range of $350 million to $370 million to $359 million to $379 million.
EBITDA growth in VNS of $20 million to $30 million is likely to be offset by a similar decline in Retail. Capital expenditure is going to be in the range of $200 million to $210 million.
It’s good to see that Vocus is getting closer to being out of the woods, though it still has a large pile of debt to contend with. It’s interesting that the potential acquirers didn’t want to look at Vocus for long, yet today’s report impressed. But, Vocus is not the type of share I’d buy for my portfolio.
Instead, I’d rather think about reliable and growing quality businesses like the ones revealed for free in the report below.
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