Vocus Group Falls 29% on Profit Warning

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Vocus Group Ltd [ASX:VOC] fell 29.7% today, to a low of $2.35. The drop saw the company shed more than $500 million from their market cap.

What happened to Vocus Group ?

On 2 May 2017, Vocus revised their profit guidance for the financial year 2017. The company is now expecting a revenue shortfall of $100 million.

After reviewing their accounts, Vocus found a number of major contracts would have to be recognised in a future financial year.

Net income for FY17 is now expected to be in the range of $160–165 million, more than 20% lower than its original guidance.

What now for Vocus Group shares?

Is Vocus an attractive investment? Well, at first, you might think it is. If revenue and profit was affected in FY17 due to accounting technicalities, there could be a chance investors are worrying over nothing.

However, it’s not just accounting technicalities causing investors to sell.

As reported by the Australian Financial Review:

The trading update, released after the market closed, follows a weaker-than-expected trading outlook issued in late November.

Back then, chief executive Geoff Horth told investors that 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.

So you might not be getting the company at a bargain. But such a drop in share price does warrant further investigation. It might even turn out that investors have overreacted to Vocus’ downgrade.

But you’ll only know that if you do a bit more digging.

Regards,

Härje Ronngard,

Junior Analyst, Money Morning

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