M2 Telecommunications Group (MTU)
The group offer a range of services specifically tailored towards small-to-medium businesses in Australia and New Zealand.
MTU encompasses the following brands:
>> Commander - offers a wide range of bundled telecommunications services with telecommunications equipment through a national exclusive dealer network.
>> iPrimus – offers broadband, phone, mobile and data services to consumers.
>> M2 Wholesale – is the exclusively endorsed wholesale aggregator of Optus third generation (3G) mobile services, and wholesale supplier of choice for fixed-line and data services.
>> Black + White - is a retail and wholesale provider of the full suite of telecommunications services to small-to-medium sized businesses and reseller telcos in New Zealand
MTU’s 1H13 results were impressive with the company on track to deliver its 8th straight year of earnings growth. The group’s 1H13 results showed spectacular growth when compared to 1H12, with the period benefiting from the acquisition of iPrimus.
A few of the key highlights of the results were:
>> Revenue was up 65%, to $305.2 million
>> EBITDA grew by a staggering 99%, to $55.1 million
>> Underlying NPAT rose by 67%, to $31.7 million
>> Underlying EPS increased by 32%, to 20.2 cents per share
The group was also able to expand its EBITDA margin from 14.9% in 1H12 to 18% in the 1H13.
We were particularly impressed by MTU’s ability to expand its margins, as it shows management’s competency and ability to successfully integrate and deliver on synergies benefits.
Acquisition based growth
MTU first-half growth was driven by the acquisition of iPrimus, with the acquisition still expected to show benefits in the second half. As well as iPrimus the company in March announced the acquisition of Dodo Australia.
Dodo is a retail focused of essential services to residential customers that include:
>> Home phones
>> Wireless broadband
>> Power and Gas
>> Car, home building and contents insurance
The group has a customer base of over 400,000 clients, with 660,000 active services.
We think the acquisition is good move as Dodo’s business is a profitable and organically growing business, which is highly complementary to M2’s existing consumer division.
As mentioned, MTU is on track to record its 8th straight year of annual EPS growth and we think the recent acquisitions will see this record continue for many years to come.
The group’s has a solid record of successfully integrating new businesses to its current infrastructure. This is evident in the recent results in which iPrimus synergy benefits helped contribute to expanding margins.
This gives us high hopes that the Dodo acquisition will be a success, with current estimates expecting the acquisition to result in underlying FY14 EPS accretion of approximately 20%.
Overall, we see expect MTU’s FY13 results (due to be released on 28 August) to show solid growth and with think the share price will rise in anticipation of this outcome.