Hold the phone – a telco stock we like
It is said that investing in ‘growth’ companies can be riskier than large ‘blue chips’ companies. However many large blue chip companies are mature and don’t grow. What then could be riskier than being assured of zero growth? How would one maintain their purchasing power?
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
ALEX BARDON
:
Hi,
As a VTG shareholder I am a little dismayed at the slump in the VTG share price.
Can anyone enlighten me as to what is causing this retreat?
Roger Montgomery
:
Hi ALex,
You need to read the announcements. I would expect another announcement from the company soon. Don’t take your cue from share prices.
David Sweetnam
:
Yeah, I wouldn’t put my money in anything Telstra-related. Their service is simply not what you expect from a developed nation, and at some point someone else will do an Aldi and take more market share from it.
Brent Sweeney
:
Hi Roger and subscribers,
Some feedback on my visit to a Telstra signed ‘Vita Group’ store in rural Qld. I visited a store last week to move a business phone number to a personal number.
1. They were so busy, they made an appointment for me the next day
2. visited the next day and were still incredibly busy, I had to wait 15 min – 6 staff were all serving someone.
3. They were unable to help me transfer my business number (more of a over complex Telstra problem)
4. But, bent the rules to sign me up to an new internet only mobile phone plan
5. While being served, noticed two separate customers walk out with new mobile phone plans with a new iPhone 6.
6. Talked to the young girl about her work there – is commissioned based, always constantly serving someone, thinks the store performs well but not entirely sure, she is selling a lot of new IPhones samsungs and new/upgrades to plans.
Roger Montgomery
:
Thank you Brent.
ethan weisz
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Hi Roger,
One obvious risk that not discussed is the expiry of the Master Agreement if there is such a thing. Vita is dependant on the Telstra agreement remaining in place. Is this a risk worth worrying about?
Roger Montgomery
:
Not in the foreseeable future Ethan. Obviously as they grow it becomes harder to ‘comp’ larger numbers.
Joe Rich
:
Hi Roger,
Thanks for the article on Vita. A few quick questions:
1) Where will future growth come from is Vita is limited to 100 stores, and already operates at its full limit (100)? Doesn’t this mean that future growth can only come from improved same stores sales. Appreciate that the firm might have a strong sales culture, but surely there is a pretty hard ceiling for growth given finite foot traffic per store?
2) I’ve valued the company using both DCF and Value.able model, with both providing a much lower valuation (around $2.7 per share). I won’t go over all my assumptions, but at a high level I’m using RR of 9% and assumption that equate to 5-year earnings growth of ~15% p.a and 10-year avg. of 10% per year (growth tapers off after 5 years). Am I being too conservative with growth assumptions? Are you assuming >20% growth will continue over the mid-term?
Thanks Roger,
Joe
Roger Montgomery
:
Telstra Business Centres Joe.
garry peck
:
Hi Roger,
Pulled out my trusty reference friend “Value-able” and checked Vita’s key statistics being book value 0.32, roe 30%,and a 2015, 100% payout ratio (ref Investsmart) to equate an intrinsic value of around $3.28, which on their current share price of $3.94 seems not to be a buying opportunity,
Am i in the ball park or am i missing something in the way of something intangible?
Roger Montgomery
:
Payout ratio last year was 65 cents. Are you including the special dividend? Be sure to use the annual reports as your first source. More generally, differences in valuation will be based on differences in our inputs, including ROE and discount rates adopted. Remember to also look forward not backwards!