Pick up the phone
As you know, anyone who invests in the stock market is bound to experience both winners and losers. A portfolio approach is the solution; ensuring that a well-constructed team of players is pursuing the goal – and in the event that any individual member of the team is sidelined, the team can still win the prize.
At Montgomery, we are not immune to the odd loss, but our outperformance (after all fees and since inception) is a function of careful stock selection and equally careful portfolio construction. And don’t forget, a large part of long-term outperformance can be attributed as much to avoiding the landmines – the permanent losses of capital – as it can to picking those companies whose share prices double, triple or quadruple.
Montgomery owns shares in both Amcom Telecommunications Ltd (AMM) and Vocus Communications Ltd (VOC); the latter of whom yesterday announced an all-scrip proposal to merge with Amcom after accumulating a 10 per cent stake.
A merger of Amcom and Vocus would produce a billion-dollar third force in data and telecommunications. It’s an almost perfect combination too, because there is no overinvestment in either camp; thus no wasted capital.
If you believe, as we do, in the trajectory of corporate data usage (see the summary below), then the deal appears to be compelling for shareholders of Amcom.
Summary of regional internet traffic growth rates:
- IP traffic in North America will reach 40.5 exabytes per month by 2018 at a CAGR of 20 per cent.
- IP traffic in Western Europe will reach 19.3 exabytes per month by 2018 at a CAGR of 18 per cent.
- IP traffic in Asia Pacific will reach 47.3 exabytes per month by 2018 at a CAGR of 21 per cent.
- IP traffic in Latin America will reach 8.9 exabytes per month by 2018 at a CAGR of 21 per cent.
- IP traffic in Central and Eastern Europe will reach 10.2 exabytes per month by 2018 at a CAGR of 23 per cent.
- IP traffic in the Middle East and Africa will reach 5.3 exabytes per month by 2018 at a CAGR of 38 per cent.
Source: Cisco, The Zettabyte Era—Trends and Analysis
The deal will also lower the cost of capital for both companies. There are also ample cross-selling opportunities, without considering the fact that Amcom dominates in states and cities that Vocus does not and vice versa.
Having spent $50 million accumulating 10 per cent of Amcom, we believe Vocus are pretty committed to the transaction.
To ensure that Amcom shareholders don’t miss out, we would reasonably expect them to want to retain the optionality of further upside by preferring a scrip-based deal.
As shareholders in both companies at the time of writing, we will be watching this very closely.
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.
