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Results: Vocus share price rockets after hitting FY19 guidance

The Vocus Group Ltd  (ASX: VOC) share price has surged nearly 10% today, trading at $3.20 at lunchtime, after hitting its guidance figures in its FY19 results release.

Vocus’ full-year highlights

For the year ended 30 June 2019, Vocus reported revenue up 0.4% on the adjusted prior corresponding period (pcp) numbers to $1,892.3 million.

Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) fell 2% on pcp to $360.1 million as the Aussie telco’s EBITDA margin fell 50 basis points (bps) to 19.0%.

Vocus Network Services continues to contribute the majority of the company’s EBITDA, with 56% of earnings on a post-cost allocation basis, while its Retail segment contributed a further 28% in FY19.

Vocus reported revenue from legacy products as 35% of FY19 revenue, compared to 64% in FY17, with the migration towards the NBN seeing ADSL broadband revenues understandably cannabalised.

While the Vocus share price has surged this morning, the company actually reported a 17% decrease in underlying net profit to $105.5 million for FY19, down from $127.6 in FY18.

However, while Vocus’ headline profit slipped in FY19, the company boosted recurring revenue 5% or $26.3 million higher on pcp largely thanks to increased NBN revenue and its Data Networks segment.

Vocus said its Australia Singapore Cable (ASC) has generated strong sales and pull through on the domestic network while strong growth in Wholesale NBN services in operation (SIOs) and revenues has been another key contributor.

Across the ditch, Vocus reported a 4.5% increase in revenue on pcp from its New Zealand segment despite a 400 basis point decline in EBITDA margin to 16.5%.

What about the FY20 outlook?

Vocus management provided an underlying EBITDA guidance range of $359 million to $379 million for FY20 with capex forecast to land in the $200 million to $210 million range.

The Aussie telco is targeting a cash conversion rate of 90% – 95% (compared to 100% in FY19) with stronger performance expected in the second half of the year.

Overall, investors have been impressed by this morning’s result with signs that Vocus is maturing into a real competitor for the likes of TPG Telecom Ltd  (ASX: TPM) and Telstra Corporation Ltd  (ASX: TLS).

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra 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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