Investors have savaged Vocus Group after it unveiled its second profit downgrade in seven months.
The junior telco slashed its guidance for underlying earnings by almost a quarter in an announcement to the market late on Tuesday.
Vocus warned its annual underlying earnings would be down as much as 19 per cent to between $365 million and $375 million for the year ending June 30.
Underlying profit after tax could be down as much as 26 per cent to between $160 million and $165 million for the year ended June 30, from its previous forecast of $205 million to $215 million.
Vocus chief executive Geoff Horth has had to downgrade investors’ expectations. Photo: Nic Walker
The reaction to the news was sharp and the stock tanked 27 per cent on Wednesday, the biggest single-day drop for the stock since 2001.
Australia’s fourth-biggest telecommunications company – owner of retail brands including dodo and iPrimus – blamed the latest downgrade on issues including revenue delays from contracts on major projects and lower earnings from its recently launched New Zealand energy retail business.
Vocus said revenue was now likely to be around $1.8 billion, compared with an earlier forecast of $1.9 billion.
The company said an accounting review of “negotiated contract terms on a number of large projects” slated for the second-half of the financial year found that “the revenue associated with these projects will be predominantly recognised in future periods rather than recognised as an upfront contribution in [the current financial year]”.
That had wiped $40 million of the revenue outlook and $33 million off the outlook for EBITDA.
Another $10 million of EBIDTA was lost through the “impact of lower than forecast billings combined with an increase in service delivery headcount in the enterprise and wholesale division”.
A further $12 million of EBITDA disappeared to higher costs in “group services” while “other trading variances across the group” will wipe out another $10 million in earnings.
The EBITDA forecast for 2016-17 has been cut from $430 million to $450 million to $365 million to $375 million.
Vocus now expects net debt will be $1.1 billion to $1 billion at June 30, but said this was “well within” covenant levels.
In late November the company issued a weaker-than-expected trading outlook and downgraded its earnings expectation to between $430 million to $450 million.
At that time chief executive Geoff Horth told investors the company’s full-year results would be skewed to the June half. However, Tuesday’s profit downgrade suggests a major deterioration in the performance of the business.
The telco’s share price has now plunged more than 60 per cent in the last 12 months, after it grew rapidly through a string of big deals in the past two years, including a $1.2 billion merger with Amcom, a $3.8 million merger with M2 and the acquisition of Nextgen for $807 million.
Vocus also flagged that annual revenue would be down about 5.3 per cent to about $1.8 billion, from its previous estimate of $1.9 billion.
Investors pushed the stock to $2.36 in early morning trade on Wednesday, wiping $614 million off its market capitalisation, before recovering to $2.44 at the close.
“We expect the market to react harshly, and rightly so, towards Vocus’ latest downgrade,” UBS analysts led by Eric Choi wrote in a note ahead of Wednesday’s dive.
Meanwhile, Citi analysts led by David Kaynes wrote that they “no longer have confidence that Vocus will be able to deliver on the full potential of its recently combined businesses”.