M2 Telecommunications (ASX: MTU) has released strong 2013 results. The highlights include:
- Revenue up 73% to $681 million
- Net profit after tax (NPAT) up 33% to $43.8 million
- NPAT excluding transaction costs up 44% to $54.8 million. Transaction costs of $11 million involved in the 2013 takeovers of Dodo & Eftel, plus another $5 million from the 2012 takeover of Primus.
- EPS (earnings per share) up 6% to 27.4c, if transaction costs excluded 34c
- Annual dividend of 20c
M2 has been very active with acquisitions in the past two years, especially in the consumer segment. This is a cause for some concern, as it is increasingly challenging Telstra (ASX: TLS), iiNet (ASX: IIN) and Singapore Telecommunications (ASX: SGT). The consumer segment is competitive and low margin, making scale important.
The M2 small and medium business segment includes the Commander brand, business grade NBN services and various Cloud offerings. MTU is estimated to have 5% of the available market.
In its presentation, management was very positive on the 2014 outlook.
2014 management guidance: median
- Revenue up 47% to $1 billion
- NPAT up 48% to $65 million
- Underlying NPAT up 54% to $90 million (add back of noncash costs and contracts amortisation)
- EPS up 33% to 36.4c
- Underlying EPS up 39% to 50.4c
- Capital expenditure down 31% to 2% of revenue
- Dividend of 26c
On these estimates, MTU is valued at 19 times 2014 earnings, and would have a 4% dividend. As MTU has largely grown by acquisition, underlying earnings are not especially relevant. The merits of this company appear to be fully appreciated by investors.
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Motley Fool contributor Peter Andersen doesn't own shares in M2 Telecommunications.
