The Vocus Group Ltd (ASX: VOC) share price has recovered strongly since its December lows, but I think it could keep growing from here.
Vocus is one of the largest telecommunications companies in Australia with a market capitalisation of $2.74 billion.
Here are three reasons why I think the Vocus share price may recover more of its lost value:
Diverse product base
Vocus has a diverse array of businesses that it can use to grow income and profits thanks to the acquisition streak it has enjoyed over the last few years.
It has the Dodo brand to sell telecommunications and energy utilities to residents. It has the Commander brand to sell to businesses. It also has the iPrimus brand to sell NBN bundles to consumers as well.
By having so many businesses Vocus can redeploy capital wherever it feels the business would make the most profit each year.
Infrastructure
Vocus has a large and growing network of fibre optic cables connected around Australia and also connecting to other countries.
This is a powerful asset to have because it allows Vocus to sell to individuals and businesses alike whilst taking most of the revenue rather than paying it to Telstra Corporation Ltd (ASX: TLS) or NBN Co.
If any companies want to use this network then they also have to pay access fees to Vocus. This could be a cash-printing machine for Vocus over the years to come.
Defensive
The nature of Vocus' businesses mean that most of its revenue is recurring. This is great for cash flow and planning purposes for the business.
It also means that in a recession Vocus could be one of the more dependable stocks on the ASX and would have a better chance of maintaining its dividend compared to the more cyclical businesses.
Risks
There are risks with every business and Vocus is no exception. The switch to the NBN changes the telecommunications playing field for all participants. It gives the smaller companies an even playing field to steal market share. Vocus is winning NBN market share but that may not always be the case.
The price that companies are charging per megabyte of data has dramatically decreased over the last few years. It makes it hard to increase prices when a price limit has been set on 'unlimited' data. Investors shouldn't expect much organic growth of revenue per customer.
Foolish takeaway
Vocus is trading at 12.8x FY17's estimated earnings with a grossed-up dividend yield of 4.52%. Vocus does seem to be one of the better defensive companies on the ASX and its current share price of $4.42 is much more attractive than the May high of $9.40. For another great dividend stock like Vocus you should read this report.
