Vocus dips on analyst rating cut

CLSA has downgraded its outlook on the telco on concerns around recent acquisition costs.

Vocus, lead by Geoff Horth, has been a major player in the consolidation game. Picture: Hollie Adams/The Australian.

Vocus Communications has mostly managed to ride out the impact of a downgrade slapped on it by broker CLSA, with the telco’s shares recovering most of the ground lost earlier in the session.

The telco’s shares ended the session at $5.83, down 1.19 per cent, after dropping as much as 5.76 per cent during the day.

The telco has been downgraded Vocus from “underperform,” to a “sell” over concerns around the accounting treatment of costs associated with recent acquisitions and potential issues with integration.

Mr Samuels said in a client note that despite Vocus’ shares underperforming the market by about 30 per cent since the company reported earnings, he was worried by accounting challenges and an increased risk to earnings.

“Issues with the way the company have dealt with Acquisition and Integration costs, Amortisation of customer intangibles, deferred customer acquisition costs, the impairment of receivables, accrued expenses and consumer broadband disclosure make it very hard to make reliable forward looking forecasts of earnings and cashflows,” he said.

“There have been various senior staff departures which suggests that perhaps there are some significant cultural integration issues which is a concern given VOC are trying to integrate so many business including Nextgen.”

Mr Samuel has also pointed to potential headwinds from the National Broadband Network (NBN) and Vocus’s strong corporate division coming under pressure in fiscal 2017.

The latest slip adds to the hammering Vocus shares took a few ago, with the stock plummeting on the news of the resignation of chief financial officer and company veteran Rick Correll.

Mr Correll’s sudden departure came at a time of considerable reshuffling behind the scene at Vocus as it gets ready to digest its $700 million acquisition of Nextgen and the $107m buy of the North West Cable System.

Vocus, as it stands today, has been a major player in the consolidation game, having bulked up its presence in Western Australia with the $1.2 billion merger of Amcom in 2015 and subsequently merging with Melbourne- based M2 Group in a $3.8bn deal.