Vocus Group Ltd's (ASX: VOC) road to recovery may not be linear, but it could be a rewarding idea for patient share market value investors.
What is value investing?
Many investors define their investing strategy by putting it in one of two camps:
- Growth investors
- Value investors
Broadly, growth investors say they pay less attention to financials and valuation and look towards understanding the business. Value investing, as defined by Seth Klarman, is the marriage between contrarian thought and a calculator. In other words, value investing is the idea of making calculated investments when you see value in a company that the market is underappreciating.
In reality, there is enough grey water between the two camps that many people cannot tell the strategies apart.
Vocus: a value play?
It's not until you come across a company like Vocus, the owner of Dodo, iPrimus, Eftel and many other telecommunications brands, that it is easy to see the value investors from the growth investors. Growth investors normally begin sweating and rush to the exits when a share price falls 50% in a year, as Vocus has done.
However, undoubtedly many value investors would be running the ruler over Vocus shares today. While the business has a growing debt pile and is facing some integration issues with its most recent takeovers, the underlying assets would be very valuable to some investors.
In addition to its retail broadband services, Vocus owns fibre network infrastructure, including data centres and subsea cables. These assets provide a reliable stream of income.
However, no contrarian investment is complete without some hairs sticking out. Vocus has plenty.
The recent management shake-up, potential cuts to its dividend, uncertainty around the rollout of the National Broadband Network (NBN) and its debt position are risks facing the business.
Buy, Hold or Sell
If you are not willing to understand the internal drivers and crunch some numbers on Vocus, it is unlikely you will be able to sleep easy at night while owning its shares, in my opinion. However, with shares being sold down heavily, I think value investors should consider taking a closer look at Vocus today.
