Vocus Communications Limited (ASX: VOC) has pulled the annoying stunt of releasing its results 15 minutes before the market opened. I've had a quick look at the report, and decided to add the company to the Hypothetical Ethical Share Portfolio at the last traded price of $3.52 (at the time of writing). [Edit: buy price will be $3.70 or closing price today... see comments below]. [2nd Edit: whoops I added it at $3.77 instead]
I regret not adding Vocus to the Hypothetical Portfolio at $3.10, where it traded just weeks ago. This is especially true because I bought shares in my own portfolio at those prices. That's life I guess.
I don't have time to write up the report (indeed, I've only scanned the numbers myself). However, the thesis expressed in this stock research on Vocus Communications holds. In fact, due to the growth in fibre revenues, I'd say that the moat is widening.
Here are my notes on the half yearly. The numbers are approximate, and the comparisons are with the immediately prior period (2H 2013). I don't believe the company is notably cyclical, so I don't care for prior corresponding period comparisons.
Vocus 1H 2014
Fibre and Ethernet Revenue growth of over 40% from $9.5 million to $13.2 million - slightly exceeds expectation
Data Centre from $8 million to $9.2 million growth of about 15% - meets expectations
Voice from $4.5 million to $3.8 million: contraction of 15% - under performs expectations
Internet from $14.5 million to $17.8 million growth of 22% - really exceeds expectations
Other observations: Capital Expenditure higher than expected. Depreciation and Administration were significant($9 million together) - capable of explaining the deficit between profit and cashflow. Cashflow up strongly for the half, to $13 million.
While depreciation and amortisation is real, I believe that much of the network equipment will outlast its depreciation period of 5 -30 years. Also, the Voice segment is the least important segment, so if any area can under-perform without breaking the thesis, then that's it.
The Author owns shares in Vocus Communications. Nothing on this website is advice, ever. The purpose of this blog is to keep track of my decisions and invite feedback
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I'm curious why you are adding the company now to the portfolio? ROE has steadily declined from 88 in 2009 to just 9 in 2013. This suggests to me that the quality of the business has slumped. With the current price tag it's priced for absolute perfection. At $3.70, I'd be inclined to be on the short side with this one.
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It was an impulsive decision. The Hypothetical Ethical Portfolio is just that, and is therefore an experiment of mine. As such, I'm trying to buy companies that will continue reliably spinning off cash in almost any likely circumstances.
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Hi Claude
LinkThanks for the good write-up.
I'm not sure of your aim with the ethical portfolio but if you want to establish an indisputable track record then adding shares at the last traded after a good half yearly report and prior to open leaves you open to criticism.
And Claude if you're gonna regret anything to do with Vocus, you should regret not adding it at around $1.70 when I reced it Motley Fool ;)
Again thanks - D
Thanks for this Dean, good point.
LinkI will amend the buy price to closing price today assuming, it is not above $3.70. I think this is fair, because it has traded plenty below $3.70 this morning. [Edit: I actually added it at $3.77 in the end]. The point of the Hypothetical Ethical Portfolio is to prove that one can achieve market beating returns while being a socially and environmentally conscious investor. Also, I hadn't started the Hypothetical Ethical Portfolio when you recommended Vocus. However, I did add it to my portfolio at that time (at $1.80). And then again at $2.30, and then again at $3.10. So thank you; yet another Morel call that has proved extremely apt.