Brokers don’t like Vocus Group Ltd’s debt problems

Shares in telecommunications provider Vocus Group Ltd (ASX: VOC) are down 0.4% to $2.42 in morning trade after Morgans rated the stock as a hold off the back of news the company’s debt is set to peak during the first half of FY19.

The telco sector is mighty fierce at present, but the move by Vocus to discontinue its New Zealand sales process and temporarily extend its debt covenants has not been met by support from Morgans, at least.

Vocus received a number of offers for its NZ businesses, but all failed to entice the board and Morgans agrees the company should hold on to the assets and “create more value” in them rather than flog them off cheaply.

The Morgans hold rating comes with a share price target reduction from $2.78 to $2.39 as the broker believes Vocus should put its energies into de-gearing and de-risking the business as competition hots up in the space as we approach the advent of 5G technology.

Vocus is still small fry in the telco space when compared to TPG Telecom Ltd (ASX: TPG) and Telstra Corporation Ltd (ASX: TLS), but top brokers don’t think you should sell out of the $1.5 billion market cap company just yet, although investors who are uncomfortable with rising debt levels may get cold feet.

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Motley Fool contributor Carin Pickworth owns shares of Telstra Limited. The Motley Fool Australia owns shares of and has recommended Telstra Limited, TPG Telecom Limited, and 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 Scott Phillips.

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