Will Vocus Group Ltd sell off its data centres?

Super computer in research institute

Vocus Group Ltd (ASX: VOC) is rumoured to be considering the sale of its data centres, which could realise as much as $160 million, according to media reports.

The Australian Financial Review (AFR) reports that the company is in preliminary negotiations to sell its data centre business, with data centre specialist Nextdc Ltd (ASX: NXT) rumoured to be among the interested parties.

Vocus has a portfolio of 20 data centres across Australia, but they have long been considered as non-core assets.

The telecommunications company has seen its share price crash from a high of $9.40 in May 2016 to a 52-week low of $2.35 and is currently trading at $2.38. Analysts and investors appear worried about the group’s large debt pile of more than $1 billion, and the ability of current management to integrate four major companies into one. Vocus merged with Amcom at a cost of $1.2 billion, M2 Group for $3.8 billion and bought Nextgen for $807 million in June last year.

The company also saw executive director James Spenceley, previously CEO of Vocus, leave the company after a failed board spill. M2 Group’s Geoff Horth was appointed CEO of Vocus after the merger with M2 Group.

A series of surprise profit downgrades have also shocked the market and management appear to have lost credibility.

Vocus management also may have to deal with a potential takeover offer, with media reports suggesting private equity firms are circling the troubled group, following the massive fall in the share price.

Foolish takeaway

With such a huge debt pile, two profit downgrades and a lack of management credibility, investing in Vocus now could be a mistake. Investors might want to wait for more results to flow through, before reconsidering. As for me, I’m holding onto my Vocus shares as I’m investing for the long term.

A Big, Fat, Fully Franked Dividend

This company's dividend is almost the stuff of legends. Since it started paying dividends in 2007, it has increased its payout to shareholders every single year, a run that includes 21 consecutive dividend increases.

Based on the last 12-months of dividends, its shares are currently offering a fully-franked 4.8% yield, which grosses up to almost 7% when those franking credits are included. And in stark contrast to the likes of Commonwealth Bank and Telstra, this company just increased its dividend by over 13%, and guided for 2017 profits to grow by 20%!

Discover the name of this "new breed" of blue chip along with 2 others in our new FREE report "The Motley Fool's Top 3 Blue Chips Stocks For 2017."

Click here to receive your copy.

Motley Fool contributor Mike King owns shares of Vocus Communications Limited. You can follow Mike on Twitter @TMFKinga

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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

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.