Hammered: Why Vocus Communications Limited is being destroyed today

Credit: Daryl Cauchi

Shares in broadband provider Vocus Communications Limited (ASX: VOC) have been sold off heavily again today following an update to the market during its Annual General Meeting (AGM) yesterday.

After yesterday’s 20% plunge, which wiped around $1 billion dollars off the company’s value, shares fell 7% today – another $200 million of share value up in smoke.

source: Google Finance

source: Google Finance

The issues facing Vocus are myriad, but the market appeared primarily concerned about the underperformance at the recently acquired Nextgen, which involved lower margins and slower-than-expected user growth.

Profit margins are a particularly sensitive topic for investors, with some expecting that the migration to the NBN will result in weaker margins in addition to the heavy up-front costs of migrating customers. Vocus investors are also uncomfortable over the depleted executive team and currently empty Chief Financial Officer (CFO) slot after a raft of recent resignations.

Vocus isn’t the only broadband provider on the nose today, with mobile and broadband company Amaysim Australia Ltd (ASX: AYS) also declining 10% after a market update. Shares in competitor TPG Telecom Ltd (ASX: TPM) are up 2%, despite falling in concert with Vocus yesterday.

Big, Fat, Dividends

This company's dividend is almost the stuff of legends. Its reliable cash flows support a high payout ratio, and the company's stash of franking credits are the cherry on the top of the dividend cake. Based on the last 12-months of dividends, shares are offering a fully-franked 6.5% yield, which grosses up to a whopping 9.3%, when those franking credits are included.

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Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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