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Why the Vocus share price is outperforming

A little reassurance can go a long way. The Vocus Group Ltd (ASX: VOC) is outperforming the market and the sector as the telecom services group kicked off its annual general meeting by reiterating its profit guidance and stepping up its attack on the NBN.

The Vocus share price jumped 2.9% to $3.50 in morning trade when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index inched up 0.2% even as Wall Street rallied to a fresh record high last night.

In contrast, shares in Telstra Corporation Ltd (ASX: TLS) shed 0.6% to $3.54, while the TPG Telecom Ltd (ASX: TPM) share price declined 0.3% to $6.70 at the time of writing.

No news is good news

Vocus shares have been gaining some traction in recent months as the group reaches the half-way point of its three-year turnaround strategy. Investors will feel a little more comfortable that the effort is paying off as its AGM didn’t turn into a Halloween earnings fright-fest.

No new skeletons fell out from the closet and Vocus reiterated its FY20 underlying earnings before interest, tax, depreciation and amortisation (EBITDA) forecast of $359 million to $379 million. This compares with the $360 million the group posted in the last financial year.

“It is our expectation that EBITDA growth in Vocus Networks of $20-$30 million will be offset by a similar decline in the Retail business,” said Vocus chief executive Kevin Russell.

“We expect the second half performance to be stronger than the first half.”

This is welcomed news for shareholders as it shows things aren’t getting worse, and may even be improving (assuming management hits forecasts).

That’s probably more than what I can say about Telstra and TPG, with the latter’s outlook hinging on its battle to merge with Vodafone.

Attacking the NBN

Vocus also used the AGM to slam the national broadband operator again. There’s resigned acceptance by Vocus (and the rest of the industry) that the NBN will eat into the retail business, but Vocus is accusing the tax payer funded network of unfairly competing in the enterprise market as well.

The group thought the NBN would enter the enterprise market in a way that increased competition in poorly served areas by acting as a non-discriminatory wholesale player.

“However, instead, what we are seeing is taxpayer funds being allocated to building fibre to areas that are already very well served by infrastructure previously built by private enterprise,” said Russell.

“Further, we are seeing behaviour and communication from NBN that is inconsistent with their wholesale only mandate.”

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Motley Fool contributor Brendon Lau owns shares of TPG Telecom Limited. Connect with him on Twitter @brenlau.

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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