Beyond Telstra: Mid-cap telcos worth a second look

This is a great time to consider mid-tier telco stocks.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

While Telstra Corp (ASX: TLS) is the elephant of the telecommunications sector and rightly gets a fair share of investor attention, the second tier telecom providers are, on the whole, a profitable bunch and worth following too. With over half of the mid-cap telco sector having reported their interim results, a quick review seems in order.

Amcom Telecommunications (ASX: AMM) has once again reported impressive revenue and earnings growth, with revenue up 43% and earnings per share (EPS) before significant items up 17%. Its outlook was equally upbeat, with guidance of 20% growth in earnings for the full year maintained and a new agreement with technology giant Cisco expected to help boost growth post-2013.

BigAir (ASX: BGL) boasts Australia's largest fixed wireless broadband network, with coverage over all capital cities and a further 15 major regional centres on the east coast. The market wasn't enthusiastic about BigAir's results, with the shares being sold down despite reporting a 36% increase in revenues and a 15% increase in underlying net profit after tax.

iinet Ltd (ASX: IIN) with a market capitalisation of nearly $800 million and a focus on retail phone and broadband customers, has impressed with 'another' set of record results. Revenue grew 30%, EPS ballooned 106% and the board raised the dividend by 33%.

Macquarie Telecom (ASX: MAQ) focuses on corporate and government clients. Management explained the 33% drop in EPS as the result of increased capital expenditure to expand its data centres, service Federal Government contracts and expand cloud computing infrastructure. This explanation, while reasonable, will not make shareholders any more comfortable with the four halves in a row of declining revenue, which suggests significant competitive issues facing Macquarie Telecom.

Foolish takeaway

There are two particularly enticing aspects to investing in mid-cap telcos. One is that today's mid-sized companies could be tomorrow's large companies. Secondly, (and perhaps more importantly) the businesses, due to their size and nimbleness have the ability to cherry pick clients from the large players through both service and pricing, allowing them to carve out profitable niches.

Looking for an even better income investment idea? Click here now to get The Motley Fool's special FREE report, "3 Stocks for the Great Dividend Boom". The report lists the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Tim McArthur does not own shares in any of the companies mentioned in this article.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »