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M2 Group Announces $100m NPAT, Lifts Dividend

M2 Group Announces $100m NPAT, Lifts Dividend
Aug 24, 2015 By Imran Valibhoy

Telecommunication services provider M2 Group (ASX:MTU) announced an underlying net profit after tax of $100m. M2Group has increased its dividend by 23% after declaring a 17 cent final dividend.

In FY15 M2Group achieved total revenue of $1.1bn, which is a 9% increase compared to last year’s $1.02bn. EBITDA was 6% higher at $170m and earnings per share increased 9% to 40.5 cents per share.

M2 Chief Executive Officer Geoff Horth was pleased with the results and called FY15 “another year of strong growth of services in operation while completing an EPS accretive acquisition of scale.”

M2 Group said 98,000 post paid services were added in the areas of fixed voice, broadband and energy. Many of the benefits are due the successful acquisition of CallPlus Group, New Zealand’s third largest ISP.

The company targets aggressive growth for FY16 and aims to lift revenue by 24-26% which will then yield higher net returns according to MTU. NPAT growth guidance is 30-35%. CEO Geoff Horth said: “The acquisition of CallPlus and our continued focus on executing on our strategy provide an excellent platform for M2 to continue to drive organic growth and create shareholder value.”

Wise-owl’s Take

MTU gained 42% in the past 12 months and is up 18.5% year-to-date. A mix of organic growth and a strategically appropriate acquisition have resulted in top-line growth and eventually a rising share price. The upcoming 12 months are expected to be increasingly challenging as the iiNet acquisition will make TPG Telecom the second largest telco after Telstra (ASX:TLS). This will leave M2 only as the fourth largest competitor with Optus being the third biggest. It will be a big challenge for management to achieve the FY16 guidance in a relatively saturated market with four strong competitors. In order to satisfy growth-hungry shareholders and to justify MTU’s valuation, the company is desperate to achieve 20%+ growth. Further expansion of the dodo brand, reaping the benefits of the CallPlus acquisition and potentially acquiring another challenger brand will be management’s strategy. MTU is currently not on our watchlist.

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Imran Valibhoy Author: Imran Valibhoy Aug 24, 2015

Since Joining the firm in 2006, Imran has worked on a range of M&A and Capital Market transactions in the natural resources, mining as well as projects in the renewable energy sector. Prior to joining Wise-owl, Imran worked at Euroz Securities in Perth, aiding in the advisory and valuation of companies in the mining and industrial sectors in Australia. Imran has a Masters in Banking & Finance from City University's Class Business School in London and a Bacheloor degree in Commerce from UWA.

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