This post formed the basis of an article which then appeared in the Australian Financial Review on 14 September 2016. Michael Gable is a regular expert contributor to the AFR. You can access the AFR version HERE.
A number of acquisitions in the last few years has seen Vocus emerge as a national telecommunications infrastructure provider. After merging or acquiring M2 Group, Amcom, and most recently Nextgen, Vocus has grown into a $4.7B company. Its only real competitors now are TPG Telecom and Telstra. Integration risks, lower than expected synergies, and more intense competition has seen the Vocus share price ease back from nearly $9.50 a few months ago, to a shade above $7. With the share price losing more than a quarter of its value, it is starting to look more attractive. Vocus trades on a forward P/E of about 18 times, and this compares very favourably with TPG which is on about 28 times. A P/E of 18 means that Vocus is very cheap when you consider that they are forecasting EPS growth of around 30 per cent next year and about 20 per cent the year after,
We have been trying to time a nice entry point but the chart has looked weak for a while now. However, recent selling has now brought the stock into a key level.
Vocus has clearly eased back since the May high, but what is interesting is the amount of volume that has gone through in the last month. This volume has pushed the stock down more than a dollar since they reported. This weakness meant that Vocus was always going to retest the longer term uptrend line near $7. Also, if the price action of Vocus is adhering to Elliott Wave theory by making an “ABC correction” from the May high, then that also gives us a target near $7. Markets are looking weak here and we may well see Vocus dip under $7 very briefly. But strong support will exist here at $7. The smart investor will be taking advantage of a market sell down to top up on quality stocks that have become cheap. Vocus should be on that list.
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