The Vocus Group Ltd (ASX: VOC) share price fell as low as $1.80 in mid-March. Since then the company's share price has rallied strongly, regaining a substantial portion of its losses since late February.
Vocus has been working hard to turn around its business after a challenging few years.
So does the Vocus share price make it a solid long-term buy right now?
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Vocus' position in the telco market
Let's first take a recap on exactly how Vocus fits into the Aussie telco landscape.
Vocus is a specialist fibre and network solutions provider. Its services include broadband, fibre, data centre services and Unified Communications.
The telco mainly targets the enterprise, government, wholesale and small business markets. It also has a smaller presence in the residential sector offering fixed broadband.
Vocus operates fibre networks connecting most regional centres in Australia, which then connect with Asia. Vocus also operates a network in New Zealand.
Challenging years for the Vocus share price
Founded in 2008, Vocus grew significantly in scale during 2015 and 2016. During that time, it merged with retail telco M2 Communications and also acquired Amcom and Nextgen Networks. Both of these telcos target the corporate market.
The last few years have been challenging for the company. The Vocus share price rose strongly through the last decade up until mid 2016. However, it subsequently dropped sharply over the following 12 months into 2017. Since then, it's never really recovered to its previous highs.
Vocus reported a 7% decline in total revenue to $902 million for H1 FY2020. Retail in particular was hit hard, suffering a 12% decline to $382 million. The Retail business was impacted by a loss of market share in its National Broadband Network (NBN) segment.
Over the past few years Vocus's retail division has struggled. This has been mainly due to the tight margins offered to retail fixed broadband operators under Australia's NBN.
Turnaround strategy on track
Despite this performance, I believe the company is now becoming better positioned for solid growth over the next few years which could be good news for the Vocus share price. The group is just beyond the mid-point of a 3-year turnaround strategy. This includes investments in new capabilities to grow its Network Services division. This division has continued to see strong sales momentum through a solid pipeline of new opportunities.
EBITDA for H1 FY 2020 increased by 2% to $179.3 million for H1 FY2020, driven by a stronger performance in its Network Services and New Zealand businesses. Vocus is also providing stimulus to its retail segment to help turn it around.
On another positive note, Vocus recently reiterated its FY 2020 guidance. The group expects its FY 2020 EBITDA to be in the range of $359 million to $369 million. Vocus also expects its core Network Services business to deliver EBITDA growth of 10% in FY 2020.
Is the Vocus share price a long-term buy?
As a specialist fibre and network services provider, I believe that Vocus is well positioned to capitalise on the rollout of 5G services over the next few years. Also, moving forward, NBN Co will place greater emphasis on making efficient use of existing fibre infrastructure. Vocus is well placed to capitalise on this opportunity which it could potentially exploit by using its existing telco networking infrastructure to partner with NBN Co.
However, the company's retail division still faces challenges, despite encouraging signs of revenue stabilisation. In addition, the Vocus share price has rallied strongly since mid-March.
Having said that, on balance, I still think Vocus offers investors a reasonably solid, long-term buy and hold opportunity.
