The Vocus Group Ltd (ASX: VOC) share price is storming higher on Thursday after the release of an announcement.

In morning trade the specialist fibre and network solutions provider’s shares are up 5.5% to $3.30.

What did Vocus announce?

Investors have been buying Vocus shares after it announced that it has both refinanced and extended the duration of its existing debt facilities and provided an update on its FY 2020 guidance.

Vocus’ new syndicated debt facility (comprising A$1,255 million and NZ$135 million) increases the duration of its debt to provide ongoing financial stability and flexibility.

And while the interest cover and gearing ratios are unchanged, management notes that the Net Leverage Ratio (Net Debt/EBITDA) covenant has been amended to a maximum of 3.25x. It will then reduce to 3x from 30 June 2021.

This mean Vocus is currently operating well within its covenant. At the end of December its Net Leverage Ratio stood at 2.8x and is expected to reduce at the end of FY 2020.

Vocus’ CEO and Managing Director, Kevin Russell, believes this refinancing and the reaffirming of its guidance is a testament to the strength of the company.

Mr Russell said: “Refinancing our debt and reaffirming guidance in the current market environment shows the underlying strength of Vocus’ business. The new loan facility is a strong platform that gives Vocus financial stability and flexibility as we enter the next phase of the company’s growth and business transformation.”

Guidance.

In FY 2020 Vocus expects its earnings before interest, tax, depreciation, and amortisation (EBITDA) to be in the range of $359 million to $369 million. This compares to FY 2019’s EBITDA of $360.1 million.

While today’s guidance is within its previous range, it has been narrowed to the low end. In February the company provided full year EBITDA guidance of $359 million to $379 million.

Management revealed that its core Vocus network services business has been doing the heavy lifting. It is expecting this key segment to deliver EBITDA growth of 10% this year.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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There’s a school of thought that once stimulus measures are wound down and JobKeeper is finished, we’ll witness another share market sell-down in response to any revelations that the economy has gone to ‘hell in a hand basket’.

Of course, this may never eventuate. All the early signals suggest that the recovery we’re on looks much better than anyone expected. However, it’s never a bad idea to add some good defensive shares to your portfolio. These shares are more likely to hold up when others are falling. Given that investors are currently looking at the market through rose coloured glasses, bringing some contrarian thinking to the basket of shares you hold could have a lot merit.

When looking for defensive shares, it’s important to look for companies that have low debt on balance sheet, sustainable and high quality underlying core earnings, quality management, and sufficient cash to seize growth opportunities. It’s also preferable that they aren’t in a sector at the apex of rapid technology and/or regulatory upheaval.

While these shares are often slow-burners in terms of strong growth, they typically have the capacity to retain their core earnings when the markets are in flux – like now.

Here are 3 ASX shares to consider.

Hansen Technologies Limited (ASX: HSN)

While this technology mid-cap doesn’t have the strong organic growth of local peers, like TechnologyOne Ltd (ASX: TNE), Whispir Ltd (ASX: WSP), and Appen Ltd (ASX: APX), the quality of its underlying earnings can’t be understated.

Two thirds of the company’s revenue is from recurring software fees. While not dynamic, this revenue is at the very least relatively bankable, regardless of what the economy is doing. The stock also earns kudos for doing what few companies are prepared to do right now – provide earnings guidance. Given the state of the economy, its full year guidance of operating of revenue between $298 million and $300 million – slightly lower than the original $300 million to $305 million – is encouraging.

What I also like about the company is its management’s track-record in growth by acquisition. With a net debt to equity ratio of around 59%, the business looks well positioned to afford future acquisitions. At $3.08, Hansen shares are trading at a 23% discount to Bloomberg’s 12-month price target of $4.02.

Spark Infrastructure Group (ASX: SKI)

As a leading electric utilities business with $18 billion of total electricity network assets, Spark’s core earnings have a high degree of resilience about them. Much of that resilience was reflected in the company’s Macquarie Investor Conference Presentation in early May. Spark reconfirmed its FY2020 distribution guidance of at least 13.5 cents per share.

Despite cost increases linked with summer bushfires and tree management, the latest financial result saw earnings before interest, tax, depreciation and amortisation up at each of its largest business units – CitiPower and Powercor in Victoria and SA Power Networks in South Australia. The result was buoyed by rising regulated tariffs and higher services revenue. Then there are the returns at electricity transmission network TransGrid, of which Spark owns 15%.

Government tariff adjustments on electricity prices tend to move in tandem with economic activity – and hence key indicators like the 10-year bond yield. A return to more normal bond yields beyond fiscal 2021, which hit record lows mid-2019, should improve Spark’s returns and distributions over the longer haul.

While the Spark share price has bounced from a low of $1.72 mid-March to $2.15, it still trades at 6% discount to Goldman Sachs’ target price of $2.30.

ASX Ltd (ASX: ASX)

ASX’s standout defensive features come from its near-monopoly status as operator of Australia’s primary market for the listing and trading of securities. Equally compelling is the quality of its balance sheet, and notably its debt-free position, and strong cash balance.

To its credit, the company was quick to warn the market of a significant decline in cost growth for FY20 (below guidance of 6–8%) due to COVID-19. While projections within the current market are problematic, the company expects net interest earned on collateral balances – which accounts for around 90% of total net interest income – to remain elevated in the near term.

Given the company’s dominant market position, history of cost containment, and ability to deliver consistently good EBIT margin, it looks better positioned than the market at large to weather near-term market volatility. This bodes well for a sustainable dividend payout ratio of around 90%.

In my opinion it’s worth watching the ASX Ltd share price for dips following future market corrections, with sub-$70 making for a more comfortable buying position than its current price of $88.57.

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Motley Fool contributor Mark Story has no position in any of the shares mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Hansen Technologies. The Motley Fool Australia has recommended Hansen Technologies. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Vista Group International Ltd (ASX: VGL) share price will be on watch today after the company provided a COVID-19 update and revealed an organisational shake-up. 

Vista Group is a New Zealand company that provides software and technology solutions across the global film industry sectors of distribution, exhibition, and consumer.

The company’s founding business is Vista Cinema which provides cinema management software in the exhibition sector. The group also has a number of other businesses, such as Movio, Veezi and Maacs, each providing technology solutions to clients in the global film industry. This includes cinema management solutions, film distribution software, intelligence solutions, box office reporting platforms, and campaign management software. 

COVID-19 trading update

This morning, Vista provided an update on the impacts of COVID-19 on its business, along with the steps it is taking to address these impacts.

To begin with, Vista acknowledged that the pandemic continues to have a significant impact on the global film industry, including its customers.

Cinemas in most countries remain closed, while those that are open generally don’t have new content to show moviegoers due to studios having delayed the release of new films.

Nonetheless, Vista has continued to support customers during the lockdown and in preparation for potential reopening, it has undertaken a number of initiatives. This includes releasing a ‘cinema re-opening kit’ to really strong demand and working with cinemas in the US to re-configure mobile apps to enable the purchasing of snacks through kerb-site pick up.

The company noted that both Vista Cinema and Movio have been successful in winning new businesses during the pandemic period – mostly in Europe.

Balance sheet initiatives and further measures

As announced back in March, Vista Group has responded to the challenging environment by implementing a series of measures to strengthen its balance sheet. This includes cancelling its FY19 final dividend, company-wide pay cuts and reduced hours, and ending engagement with all non-essential contracting measures.

On top of this, the company also completed a NZ$65 million capital raise at an issue price of $1 per share.

In addition to these initiatives, the company announced this morning that it has undertaken a review of its business to determine the extent to which additional cost reduction measures are required.

As a result of this review, the company has begun consultation with its staff regarding a proposed new structure for the core Vista Group companies – Vista Group, Vista Cinema, and Movio. This would mean a new organisation structure worldwide – one with fewer employees.

If the restructure proceeds in its current form, the company expects to achieve annualised cost savings of between NZ$12 million and NZ$15 million.

Commenting on trading conditions, CEO Kimbal Riley said:

“We are operating in a situation where we do not know when our customers (80%+ of Vista Group customers are cinemas) will be able to reopen in a meaningful way. This has had, and continues to have, a significant impact on their businesses – and therefore ours.”

And as for the restructure, Mr Riley commented:

“We have therefore taken the decision to implement a restructure of all our core businesses (Vista Group, Vista Cinema, and Movio) in all our offices. Whilst this will have a significant impact on a number of people, we will ensure everyone is treated with the utmost respect and given appropriate support”.

The Vista Group share price rallied 23.36% yesterday despite no news out of the company, closing at $1.88. This takes Vista’s year-to-date loss to around 40%.

More reading

• Why this ASX 200 telco share is storming higher today
• 3 defensive ASX shares for a potential September sell-off
• Is the CBA share price cheap today?
• Why it’s a good week to buy international shares
• 3 high yield ASX dividend shares to buy right now

Cathryn Goh has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Vista Group Intl. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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