MENU

3 reasons I’m eyeing off Vocus Group Ltd shares this week

The Vocus Group Ltd (ASX: VOC) share price has been pummelled.

Vocus Group Share Price

Source: Google Finance

Despite the telecommunication provider’s exceptional run-up in price over the past five years, shareholders are almost back to par with the market, or S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) – note the blue line in the chart. However, that return is before dividends.

Who is Vocus?

Vocus is one of Australia’s and New Zealand’s leading telecommunications providers. It owns Dodo, iPrimus, M2, Amcom, Nextgen, Slingshot and much more. It also owns an extensive fibre network backbone.

The recent share price falls have been a result of a change in sentiment, management musical chairs, the ongoing NBN rollout and integration issues with its recently acquired businesses, including Nextgen Networks and M2. Following a recent profit downgrade shares fell to new lows, with its debt position being called into question.

Why consider Vocus shares?

My family has held Vocus shares since they merged with M2 Group — they have fallen a long way since then. But with prices at current levels, I’m considering starting a personal position in Vocus.

For the record, you can see my personal holdings here. As with all Motley Fool contributors, our disclosures always follow our articles (see below).

Here’s why I’m considering Vocus shares:

1. Upside potential. They say you should never send good money after bad. Water the flowers, not the weeds. However, there’s a good chance the market has overdone the effect of the challenges facing Vocus’ businesses.

2. Hard assets. Behind the Vocus reselling business there is a network that would be highly valuable to the right suitor. In my opinion, this network offers downside protection in the worst-case scenario.

3. Growth levers. To help its debt position, the company has a few levers it can pull. For example, it will likely trim or cut its dividend. It could also cut its capital expenditure. I think capital expenditure is more important than a dividend. But, longer term, I expect Vocus to resume paying a decent dividend to shareholders given the defensive high margin nature of some of its businesses.

Foolish Takeaway

Ultimately, Vocus is a higher risk business but it has some great features.

A fall in a company’s share price is never welcome — unless you are buying.

Are you thinking of buying Vocus shares? Try these 3 blue chip dividend share ideas. They have been hand-picked by our expert analyst.

Just, click here, enter your email address and we'll send you our expert analyst's research report -- completely free.

No payment or credit card details required.

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes and encourages your feedback. You can follow him on Twitter @OwenRask.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Telstra Limited. The Motley Fool Australia owns shares of Vocus Communications Limited. 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.

HOT OFF THE PRESSES: My #1 Dividend Pick for 2017!

With its shares up 155% in just the last five years, this ‘under the radar’ consumer favourite is both a hot growth stock AND our expert’s #1 dividend pick for 2017. Now we’re pulling back the curtain for you... And all you have to do to discover the name, code and a full analysis is enter your email below!

Simply enter your email now to receive your copy of our brand-new FREE report, “The Motley Fool’s Top Dividend Stock for 2017.”

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.