Why the Vocus Group Ltd share price is falling today

Vocus Group Ltd (ASX:VOC) shares are heading lower again today.

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Shares in residential broadband and fibre-optic internet business Vocus Group Ltd (ASX: VOC) dropped 5 per cent to $3.25 this afternoon despite the telco releasing no news to the market.

The group is currently subject to two separate takeover bids from rival private equity operators KRR and Affinity Equity Partners at $3.50 per share, with teams of gun number crunchers from both currently going over the books.

Under its own new CFO Vocus recently reconfirmed guidance for it to post a net profit between $160 million to $165 million on revenues around $1.8 billion in Fy 2017. It also confirmed it expected FY 2017 capital expenditure to be in the region of $180 million to $190 million.

Over FY 2018 the group is also investing heavily in its 4,600km聽Australia-Singapore Cable聽project with construction underway in Singapore and the project due for completion in one year's time.

The upfront capital investment required is making short-term focused investors nervous, although if the group secures pre-funding commitments from enterprise 聽customers the stock price could rocket.

Vocus's submarine internet cable does reportedly have a rival in the Indigo project, but construction is not even started on Indigo and the group's last forecast is for Indigo to be ready by "mid-2019".

That gives Vocus a yawning year-long advantage in securing clients for its cable, although it will mean little if the group's board decide to throw in the towel in the wake of the private equity bids.

Vocus is due to report its full year results on August 23 and all eyes will be on cash flows given its recent problems, while any forecast for the year ahead will also be seized on by the market.

For long-term investors a better bet in the telco space may be TPG Telecom Ltd (ASX: TPM), as it is a well run business trading on a decent valuation as a result of concerns that cash payouts to investors over the short term may be hampered by large upcoming capital expenditure commitments.

Motley Fool contributor Tom Richardson owns shares of Vocus Communications Limited. You can find Tom on Twitter @tommyr345 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.

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