Vocus NZ float: More details of New Zealand listing leak

ASX-listed Vocus Group will begin a non-deal roadshow in about three weeks to promote an IPO for its New Zealand operation, according to a report in The Australian’s Dataroom gossip column.

The listing is most likely to occur on this side of the Tasman, for a clean break, with Vocus’ local business valued at around A$700 million ($722m).

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Vocus’ NZ assets include retail internet service providers Orcon, Slingshot and Flip (bought from NZ’s CallPlus for $250m in 2016); Stuff Fibre (bought from Nine earlier this year in a deal referenced at $8m in a Vocus filing); the nationwide fibre network formerly owned by FX Networks (bought in 2014 for $116m), data centres formerly owned by Maxnet (bought in 2012 for $10m and since upgraded) and small power retailer Switch Utilities.

A busy few months has seen Vocus NZ buy Stuff Fibre, relaunch its budget-priced Flip brand, become the only major player to support Chorus’ Hyperfibre product, expand its partnership with Google, and reveal that it will be the partner for Sky TV’s soon-to-launch Sky Broadband service.

The Stuff Fibre acquisition bumped Vocus’ NZ subscriber base up 10 per cent to around 226,000 (putting Vocus well ahead of 2degrees and Trustpower in fixed-line broadband, if still some distance being Vodafone NZ on around 420,000 and Spark on around 700,000).

For its 2020 financial year, Vocus Group reported that revenue for its New Zealand operation rose 6 per cent to NZ$398.8m for the year to June 30, while ebitda rose 4 per cent to NZ$65.4m.

It was the NZ operation’s fifth straight year of operating earnings growth, helping to explain the apparent expectation of its IPO at a A$700m market cap – a substantially higher valuation than the reported A$500m price tag when Vocus tried to sell its NZ business in 2018 (it was ultimately withdrawn from sale).

A Jarden note issued after the IPO was confirmed on November 19 said: “Given the mix of retail and enterprise operations, we value Vocus NZ on a 6.0x FY2021 estimated ebitda
multiple, which implies a total valuation of A$416m (or A$0.66/share).”

But the wealth manager sees a focus on Vocus’ enterprise and wholesale assets. That leads it to the following kicker:

“Given the extensive fibre assets, we suspect the company will seek to benchmark the business against fibre operators globally, who trade on an average multiple of around 9.5x.

“Applying this multiple to the Vocus NZ ebitda results in a valuation of around A$660m or A$1.05/share – 40 per cent more than our valuation for the business.”

But although Jarden finds that too heady, it notes a valuation at that level would be “broadly consistent with the Spark NZ trading multiple of around 9x.”

Trade sale speculation

A plan by Vodafone to list its New Zealand operation on the NZX in 2019, following its failed bid to merge with Sky TV, was headed off by a $2.4 billion trade sale to Infratil and Brookfield Asset Management.

Similarly, there has been speculation on both sides of the Tasman that a private suitor could scoop up Vocus NZ before its listing. Castle Point Funds partner Richard Stubbs told the Herald he would be surprised if Sky TV wasn’t taking a hard look (as noted above, the pair have since revealed a partnership).

We’ve been here before. When Vocus put its NZ business up for sale in 2018, Trustpower – half-owned by Infratil – and 2degrees in partnership with a private equity playerreportedly both reached the final round of bidding, but both ultimately made offers that fell short of A$500m. Vocus ultimately shelved the sale.

And this time around, The Australian reports that Pacific Equity Partners and other private equity players have again been circling – but that they were only prepared to pay around A$400m for the business.

June 30 deadline

Vocus Group itself hasn’t made any comment since a November 19 statement that it planned to list its NZ operation before the end of FY2021 – that is, before June 30 this year – with Jarden, Craigs and Goldman Sachs as lead managers.

The telco is not due to offer another update until its half-year report in February.

But the looming June 30 deadline means Dataroom’s report of a roadshow within a month is not much of a stretch.

Today, Callander declined to comment. He reiterated that there would be an update when the company’s interim results are delivered next month.

Vocus Group shares closed up 7c to A$4.23 yesterday for a A$2.6b market cap.

The stock is now well above its 2018 trough of A$2.28, though still well off its 2016 high of A$9.29 on the back of hype over the Vocus-M2 merger that, initially, failed to live up to investors’ earnings expectations.

Analysts say proceeds from the float of the group’s NZ operation could be used to pay down debt from the current ratio of 2.7 x earnings. Vocus has an agreement with its lenders that it will not pay a dividend until the ratio falls to under 2.25.

Meanwhile, NZ will have half an eye on 2degrees’ Toronto-listed owner, Trilogy International Partners. Trilogy has two major assets, 2degrees here and a similar-size telco in politically and economically troubled Bolivia – which has been regarded as a drag on profits, and said to have derailed plans for a local listing. Trilogy recently put its South American operation on the block.

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