The Vocus Group Ltd (ASX: VOC) share price hit a 52-week high of $3.97 this month as the home broadband and enterprise dark fibre business is a potential turnaround story if it can beat its debt problems and reset its legacy M2 business under brands such as Dodo and Commander.
However, one cloud on the horizon with regard to its balance sheet is the receipt of a class action claim being launched by aggrieved investors who bought shares in the business between 29 November 2016 and 2 May 2017.
It's being alleged that over this period the company misled investors with erroneous earnings guidance and failed to meet its continuous disclosure obligations as to its operating performance.
Ironically the accusations are being made by the textbook example on the ASX of how to blow up billions of dollars in shareholder capital through egregious behaviour in next to no time – Slater & Gordon Limited (ASX: SGH).
Vocus intends to defend the proceedings, but for shareholders the question to consider is the size of any potential compensation due in the event the claims are upheld in court.
Quantum awarded is normally a fixed percentage of actual losses suffered assuming causation (i.e. the investors relied on the misconduct in making their decisions) is proven. So to get a rough idea you'd need to know the size of share price falls (around $3 per share) over the period multiplied by the number of shares owned by claimants.
The claim is not likely to be for a materially large amount, but Vocus's balance sheet is a problem as it is less able to absorb any payouts due to its perilous leverage.
If I were still a Vocus shareholders I wouldn't be overly-concerned about the class action, compared to some of its other problems, while for full disclosure I'll flag that I recently took advantage of recent price rises to sell the rest of my shares after the catastrophic blunder of holding onto them for too long after the M2 Group merger.
As such I'm not a buyer of Vocus shares or others amongst the NBN wreckage including Telstra Corporation Ltd (ASX: TLS).
