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Vocus share price in focus as it hits FY19 earnings guidance

The Vocus Group Limited (ASX: VOC) share price lifted 10% to $3.20 on Thursday, before pulling back slightly in today’s trade to close at $3.18 per share.

The market responded positively yesterday after the telecommunications provider announced a spot of good news amidst a year of disappointment.

Could this be the end of its troubles?

In May this year, Vocus shareholders experienced some relief when the company was the target of a bidding war. AGL Energy Ltd (ASX: AGL) signalled its interest in the telecommunications space but was unable to an exclusive due diligence period with its tentative offer. It did, however, spark the interest of Swedish private equity firm EQT, which proposed an indicative offer of $5.25 per share – valuing Vocus at $3.3 billion valuation. Although the Vocus share price raced up as much as 20% to its $4.90 highs, EQT backed down from negotiations less than a week into its due diligence period, making it the fourth failed acquisition attempt in the last 2 years. Unsurprisingly, the Vocus share price fell as much as 37% to $2.97.

Results

The company yesterday reported “results in line with guidance across all key metrics”, with highlights in New Zealand performance and retail business unit margin improvements. However, a closer look at these figures reveal much left to be desired – with revenues stagnating at +0.4% and EBITDA falling by 3% to $349.1 million. Furthermore, increased expenses in employee benefits and financing costs saw the group’s net profit after tax fall to just $34 million, or a decrease of 44% on their FY18 figures.

Outlook

Despite this poor performance, the market was clearly expecting worse. In its investor presentation, the Vocus management team has described FY19 as a “foundational year” for its 3 year turnaround plan, and a sign that its current strategy is on track. The company has also adjusted its previous FY20 earnings guidance from underlying EBITDA of $350–$370million to $359–$379million, or growth of between 0%–5% on current year figures.

Foolish takeaway

Whilst it may be tempting for investors to see the potential upside, I would be staying clear of Vocus shares until the company can demonstrate its ability to turnaround not only its own operations, but find a solution for the headwinds they are facing in the telecommunications industry.

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Motley Fool contributor Saran Likitkunawong has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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