Over the past year, some of the best performers in the S&P/ASX 200 Index (ASX: XJO) (Index: ^AXJO) were in telecommunications. In a fast-paced industry with strong competitors and technological advances happening rapidly, businesses have to stay on their toes to get ahead.
Among those telecom companies, two companies stick out for me. They generated some very attractive gains for shareholders in 2014, yet what can be expected in 2015 and beyond?
— Vocus Communications Limited (ASX: VOC) has big plans for 2015 as it moves toward merging with Amcom Telecommunications Limited (ASX: AMM) to make a $1 billion+ company that will have network infrastructure and services spanning Australia.
In the past twelve months, the stock steadily climbed 95%. After the proposed merger, it will be one of the biggest telecom providers to government and corporate customers. CEO James Spenceley's goal is for Vocus to dislodge Singapore Telecommunications Ltd (CHESS) (ASX: SGT) operated Optus from the industry number two spot after Telstra Corporation Ltd (ASX: TLS). The merger could become a game changer.
The stock is trading at about 31 times earnings, but that matches up well with analysts' very high double-digit earnings growth forecast. I would put this one in your watchlist and look for price pullbacks until the merger is completed this year.
— Telstra Corporation Ltd (ASX: TLS) is up 27% this past year, beating the average long-term ASX return two-fold. In 2014, the telecom giant and industry leader started taking big steps to transform itself into an Asia Pacific business enterprise service player. Telstra is working with regional telecom leaders, as well as acquiring communications networks and data centres.
NBN negotiations for the turnover of Telstra's phone copper network infrastructure concluded in December, so the company can focus on growing its Asian business and look towards receiving cash flows from the turnover. Earnings growth is not projected to be high near-term because of the necessary capex and investment for this Asian region growth. Investors will need a long-term view on company performance. The stock's 4.6% fully franked yield could provide solid portfolio income for dividend investors.
