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VOC vocus group limited

1.56%

$2.28

Spark (NZ) not enthusiastic perhaps, page-22

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bug1

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27/02/18

07:45

Post #: 31365241
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Originally posted by JoeGambler ↑

Its USD121m which is over A153m, it's a big number and likely more than 1/3 of the sale price of NZ. I assume it will fall due on the completion of the project which is slated to be Q1FY19. I presume this is why the June 30 goal for the sale of NZ is required.

Just on this years capex, only about 80m of the 180-190m non ASC capex guidance has been expensed. Which, according to the presentation, leaves A100-110m left for the second half. This is in addition to the further USD19m (A24m+) ASC capex. That's potentially A130m+ capex in H2FY18 alone.

Cash from operations was only A86m and another A22m of debt was added to cover the first half spend, which was only about A110m total. Yes, they are guiding no change in debt, but clearly there is going to have to be big increase in cash flow to cover the even bigger required capex bill this half. I don't recall much in the way of cash flow guidance for the second half to pay for all this, do you? In fact, they downgraded profit expectations for the second half, albeit some of that to do with non-cash depreciation.
If they match the first half cash from operations that's a A50m+ shortfall and would put them right to the top of the facility limit and most likely bust the EBITDA covenant at the lower end of EBITDA guidance.

So, the NZ sale will have to cover the second half capex somewhat in my opinion, as well as the final ASC payment. That is potentially over A200m being diverted from the sale of Vocus NZ which won't be going to reduce debt. If 400m is achieved, the debt might only be reduced to A850m, yet EBITDA will also dive by 50m+ with the NZ business no longer contributing.

It's a bit of a dicey looking situation as debt will still be quite high if the ASC doesn't really take off to cover for the lose of the NZ business, or other remaining parts of the business for that matter. The debt/EBITDA ratio would still be high twos. The thing I don't really know is what FY19 capex will look like. If that is substantially reduced than it could relieve some pressure quickly. I assume there are some broker reports with assumptions. I probably should know this. Maybe Bug1 has an idea about that and whether I am on the right track here with the numbers I am trying to interpret.

Bottom line is it is a very stretched balance sheet to get this cable over the line.

Expand

In the annual report FY18 capex included
- 29m IRU
- ~106m Growth
- 44m Improvment
- 21m Sustaining
Total 200m

H1 was saw
- 0 IRU
- 54.7m Growth
- 10.8m Improvment
- 14m Sustaining
Total 79.5

The difference being
- 29m IRU
- 51.3m Growth
- 33.2m Improvment
- 7m Sustaining
Total 120.5

However Guidance for capex was also reduced by 10m to 180-190 annually, which leaves $110m in H2, or H1 again+30m IRU

I dont have any idea about FY19, depreciation should kick up again with ASC, but thats not a cash issue.

There was said to be a 'decent amount' of pre-payments from ASC which arent in the numbers yet. I dont know how much that might be, but i estimate it needs $30m of revenue per annum to provide a reasonable ROIC.

The bottom line for me is that its a profitable and growing business (growing in revenue at least), we have a good CFO, and he talks to the banks about he how things are going, IIRC he mention there are 'other arrangements' that can be made.

Worst case scenario i see would be a credit raising, and that could possibly even be a positive for the SP given how much its weighed down by debt concern. In the longer term as things smooth out integration expenses should reduce and we should see profit increase as flow through from increased earnings due our high PP&E.

VOC Price at posting: $2.41 Sentiment: Buy Disclosure: Held
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