Australia | Sep 11 2007
By Chris Shaw
While earnings issues at Commander Communications (CDR) and regulatory issues at Telecom New Zealand (TEL) highlight the volatility of the telecommunications sector Intersuisse believes it has found a company offering a reliable growth in revenues, profits and dividends in M2 Telecommunications Group (MTU).
The company’s track record backs up this view as the FY07 profit was its fifth consecutive record profit and further growth is expected as the acquisition of Orion Telecommunications, which should be completed by October, is forecast to boost revenues to near $100 million annually, more than double what was achieved in FY07.
The FY07 revenue figure of $43.8m was itself an increase of 31% from the previous year, reflecting the acquisitions made during the period and the increased customer base this created for the company.
Growth is not only coming from acquisitions as the company continues to win new contracts, as evidenced by recently being appointed the preferred telecoms provider to Capricorn Society, Australia’s largest automotive industry buying group. The broker expects the increased product offering and capabilities from recent acquisitions such as Wholesale Communications Group will continue to enhance the company’s organic growth prospects by adding new growth platforms to its operations.
An example of the new products being offered is the company’s wholesale high speed residential broadband and telephony offering, while the company’s solid relationship with Optus continues to provide opportunities for increasing earnings through new contracts.
The strong revenue growth in FY07 translated into a profit increase of 10% to $2.41 million and the broker expects continued growth in coming years, forecasting profits will increase to $5.1 million in FY08 and $6.6 million in FY09.
Dividends should keep pace with this profit growth, the broker expecting an increase to 4.8c in FY08 and 6c in FY09, which would be double the 3c paid out in FY07. This implies a yield of 6.1% this year and more than 7.5% in FY09 based on yesterday’s closing price of 78.5c.
Given a market capitalisation of a little under $50 million it is not surprising the company is not widely covered by the broking fraternity, the FNArena database showing none of the major Australian brokers research the stock.
Shares in M2 are untraded so far today and the last price of 78.5c compares to a trading range over the past 12 months of 30.5c to $1.00.
