Is Vocus about to light up?

Is Vocus about to light up?

Russell and I attended the Vocus Communications Limited (ASX: VOC) Annual General Meeting last week. While the company could not give anything away on their proposed merger with Amcom Telecommunications Limited (ASX: AMM), we continue to be incredibly impressed with the calibre of the Vocus Board of Directors, especially in the context of its $600m market capitalisation.

In the four years to June 2014, the company’s revenue line has increased from $31m to $92m, while its EBITDA has climbed from $10m to $33m. And in the four years to November 2014, the Vocus Communications’ share price has responded in kind by quadrupling from $1.50 to the current $6.00.

And the story is by no means done. Recent strategic acquisitions of 10 per cent of the Sea-Me-We3 cable connecting Perth with Singapore, the Bentley (Perth) distribution centre and the New Zealand-based FX Networks, should all contribute significantly over the medium-term. We would also expect that as the businesses cash-ball continues to grow, further acquisitions are likely.

The largest acquisition to date is FX Networks, a high quality infrastructure asset with 4,200 kilometres of ducted fibre that passes 98 per cent of the New Zealand population. We expect the disciplined and highly quantitative approach instituted by Vocus will see greatly improved results from their New Zealand subsidiary from FY2016.

A successful merger with Amcom would make the combined company the only true trans-Tasman telecommunications business and there should be significant synergies, particularly from a cross-selling (revenue line) viewpoint.

Talks have been very positive to date and both Boards have arrived at an agreed basis in which to engage due diligence. While that process could be complete in the next few weeks, we do not want to get too far ahead of ourselves given TPG Telecom Limited, with a $6.0b market capitalisation, has built a 6.7 per cent shareholding in Amcom, and they have the resources to block this proposed merger, if they elect to do so.

To that end, Vodafone Group PLC have indicated they may be a seller of their interest in the Australian-based Vodafone Hutchison joint venture and some have suggested a price of around A$2.7b. We speculate TPG Telecom may be running the ruler over this opportunity.

 The Montgomery [Private] Fund is a shareholder of Vocus Communications.

David Buckland is the Chief Executive Officer of Montgomery Investment Management. To invest with Montgomery, found out more.

MORE BY DavidINVEST WITH MONTGOMERY

Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.

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.