Morningstar | AGL's Turn to Size Up Vocus and Enter the Data Fun House
We lift our fair value estimate on Vocus by 32% to AUD 3.95 per share. This has been derived by assigning a 50% probability to AGL Energy's AUD 4.85 per share indicative proposal succeeding, 50% probability that it does not, and Vocus' stock price reverting to our AUD 3.00 stand-alone intrinsic assessment.We admit this change is likely to be met with apathy. After all, we are only recently guilty of performing a fair value flip-flop in response to EQT Infrastructure's quick AUD 5.25 per share "offer and withdrawal."
Vocus' data room is fast becoming a Kinder Surprise "fun house," given that it has been visited by three private equity suitors who have all walked away with their assessments of the narrow moat-rated group's intrinsic value tied in knots. Nevertheless, AGL's due diligence could yield a different outcome, as it is likely to have a longer investment horizon. If AGL's rationale for acquiring Vocus is to be believed (energy-data cross-sell and integration), there would also be no need for an exit strategy down the track, a factor that is critical to private equity's assessment of any acquisition.
We made our reservations about AGL Energy's interest in Vocus very clear in our last published research on June 5 and we won't repeat them. The energy company's negative stock price reaction to the Indicative Proposal shows the market is also less than enthused about the deal. For a different perspective, we refer readers to Morningstar utilities analyst Adrian Atkins' AGL research on the Indicative Proposal and, spoiler alert, it is not positive either.
In the meantime, shares in Vocus are trading just above our revised fair value estimate as "hot money" re-enters the register. The guessing fun and games begin afresh on whether AGL will come through with a firm offer after the four-week exclusive due diligence. None of this changes the fact that, at the operating level, Vocus remains in the early stages of a three-year turnaround program.
Vocus Group is a telecommunications provider, providing telecommunications and other services to customers across Australia and New Zealand.
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