Home and fibre-optic internet business Vocus Group Ltd (ASX: VOC) this morning reported a net profit of $152.3 million on revenues of $1.82 billion for the full year ending June 30, 2017.
This is the first time Vocus Group has reported full year results as a combined entity and the company issued three profit downgrades over the course of FY 17 as it struggled to get a grip on its financial reporting as a result of its multiple mergers and acquisitions.
Diluted earnings per share (excluding the impact of a $1.5 billion non-cash write down to the value of its home internet businesses) were 18.6 cents with the group paying no final dividend as it needs to pay down debt and save money for capital expenditure. The group did pay an interim dividend of 6 cents per share when it reported its H1 17 results last February.
Debt
One key consideration for investors given the group's extensive upcoming capital expenditure commitments is its net debt that stood at a $1 billion at June 30, 2017.
The net debt stands at around 2.6x underlying trailing EBITDA of $366.4 million, which is comfortably within the debt covenants that permit a leverage ratio no greater then 3x.
Its interest cover ratio as a multiple of how many times trailing EBITDA covers interest payments stood at 9.1x well over the minimum requirement of 5x. Gearing as a measure of net debt divided by net debt + equity stood at 30.9% also comfortably under the maximum 60%.
Operations
Operationally the group's core dodo and iPrimus consumer-facing home internet brands grew their market share to 7.3%, compared to 6.4% at the beginning of the period, and its New Zealand home internet business largely under the Orcon brand posted a 13% market share.
The group's star asset in its original Vocus fibre-optic cable networks providing internet and cloud services to enterprise customers has also reportedly been overhauled to reflect the strongest attributes of the Vocus, Amcom, M2 and Nextgen businesses.
Asset sales coming soon?
The company also flagged that a number of "Australian assets" of "material" value are not far away from being sold as a number of bidders have "proactively" approached the group over its assets, with an update to be provided at the October AGM. Recently, market chatter has been that its data centre assets have attracted a lot of interest and the group is likely to secure a massive cash injection if it chooses to do a deal.
ASC Cable
The telco also emphasised its commitment to the Australia / Singapore Cable project by announcing it will invest to extend its reach to Christmas Island due to "significant" interest from "government agencies" in using its capacity. The cable is already under construction in Singapore and on track for service in Q1 FY19 or around next August 2018. It is also at least a year ahead of its reported rival that is hopeful of it being ready by "mid 2019" at the earliest.
Outlook
After a torrid FY 17 investors will hope the worst is behind it for Vocus and this remains a company with a collection of high-quality assets built to service future demand for internet and cloud services. However, its residential broadband businesses certainly have their work cut out in the competitive new NBN environment against rivals like Vodafone, Telstra Corporation Ltd (ASX: TLS) and TPG Telecom Ltd (ASX: TPM).
The group is forecasting revenue up to between $1.9 billion to $2 billion in FY 18 with EBITDA between $370 million to $390 million. If it can hit these targets and win back investor confidence the stock could be good value.
