Vox Telecom: Perfect target for takeover?

ADSL South Africa (Broadband South Africa), 14 June 2010

ADSL South Africa (Broadband South Africa) is of the opinion that Vox Telecom is a perfect target for a takeover, especially given the negative sentiment that was unleashed by the Dealstream debacle in 2008 and the impact of the recession on their financial results. 

Share price took 87% knock…

Vox Telecom’s shares are currently trading at more or less 29c per share which gives the group a market cap of more or less R321,4m. This is considerably lower than the market cap of R2,3bn they had in October 2007.

It is no secret after all that Vox Telecom’s share price took a huge knock due to the Dealstream debacle. It came down from 225c to the current 29c per share which equates to a massive 87% fall in their share price. The recession and changes in the telecoms sector (such as the recent interconnection rate cuts) have also impacted negatively, not only on their share price, but on their financial results as well.

Without going into much of the details, Vox Telecom basically suffers from the following:

• Issued Shares – Vox Telecom has simply issued too many shares, especially given the new share incentive scheme that was announced in the beginning of the year. This can only help to place downward pressure on the share price, especially during these tough economic times and in a sector that’s becoming increasingly competitive.

• Cash for Acquisitions – Vox Telecom has too little cash left to make any further acquisitions. This means there's little or no room left for growth through acquisitions.

• Organic Growth – There is not much room left for organic growth either, especially given the fact that the telecoms sector in South Africa is heating up intensely leaving less and less room for organic growth.

• Low Margins – Vox Telecom is in a business with very low profit margins and equally low margins for error (as they must have learned from the Dealstream debacle).

In other words, given the above, it’s clear that Vox Telecom is going to have a tough time to grow and expand on its own. 

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