Vocus rings the right numbers

TPG Telecom (TPG) may be the darling in the small cap telecommunications sector due to its stellar returns, but another lesser known junior is close to stealing its crown.

Vocus Communications (VOC) is at a record high after recording its fifth consecutive day of gains, but not many would have heard about the stock, which increased 3.3% to $4.02 at 1400 AEDT.

The recent run-up in the share price was sparked by last week’s strong interim result, with underlying net profit surging 52.3% to $5.9 million on the back of a 44.7% uplift in revenue to $44.3 million.

Robust growth in demand for its internet, fibre and data centre services more than outweighed the 9% decline in voice revenue, and helped Vocus generate a 129% improvement in operating cash flow to $13 million.

While management didn’t provide guidance, the expected 17.3% drop in capital expenditure (capex) from a record amount in 2012-13 to $15.9 million for the current year will bolster profit growth. Capex is expected to fall further in the coming periods.

Consensus estimates forecast 2013-14 sales of $89.8 million and an adjusted net profit of $12.3 million

This puts the stock on a relatively lofty price-earnings multiple of over 26 times, but the expected double-digit growth to its top- and bottom-line will see the multiple fall to around 18 times in the coming year.

Telecommunication stocks have been among the best performing sectors in the ASX Small Industrials Index over the past 12-months, with TPG leading the charge higher with a total return of 124%.

However, Vocus, which is not part of the small industrials index, has inched ahead with a 125% return over the period.

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