Earlier this month M2 Group Ltd (ASX: MTU) hit a new all-time high of $8.07 two weeks after the release of its full year results showed a whopping 60% underlying net profit increase.
Just as impressive is its 31% share price rise to $7.84 over the past two months. Compared to the 3.6% decline of the S&P/ASX 200 Index (INDEXASX: XJO) over the same period, M2 Group shareholders should be quite happy.
After such a strong run up, it may be tempting to cash in your chips. Still, that may be short-sighted, judging from the upcoming growth and business innovation the company has.
Here are some reasons why I think there's still more in store for the company and investors should hold onto their shares.
1) Customers are catching onto utility payments service
In FY 2014, the company's acquisition of Dodo Australia made it a utility retailer of gas and electricity in Victoria and of electricity in NSW, Queensland and South Australia. This created a new income stream which makes up about 10% of total revenue. More than that, bundling this service to its broadband offering is attracting more subscribers because of the cost savings and convenient combined payment.
In addition, Dodo kiosks set up in shopping malls are drawing in more customers by connecting directly to new subscribers where they routinely are. The company plans to expand this marketing program more in FY 2015.
2) Increasing its NBN services / business bundling
To stay competitive and innovative, the company has added another 15 new "points of interconnect" that will significantly expand its NBN footprint. Customers will want very fast download speeds.
This is especially true for the business customers of its Commander commercial service. The company offers NBN-ready Commander phone services. This year business customers can also start bundling broadband/mobile with energy utility services and save money on their utility bill. That will attract more business customers and set the company apart from the other telecom companies like iiNet Limited (ASX: IIN) and TPG Telecom Ltd (ASX: TPM).
3) Company performance and FY 2015 guidance
The company generated over $1 billion in total revenue for the first time in FY 2014, thanks to solid organic growth and the acquisition and integration of Dodo Australia. Full year net profit was $93 million, up from $58 million last year. Long-term debt at 30 June 2014 stood at $264 million, a manageable level with respect to the company's earnings.
M2 Group gave FY2015 guidance of 8% – 9% revenue growth and 15% – 20% growth in earnings. Its fully franked dividend yield of 3.6% together with the earnings guidance makes the stock's current 14.8 price-earnings ratio reasonable for the growth.
I like the company's ability to stay innovative and keep up its fast pace of earnings growth. One of the keys to investing success is picking stocks that have rising earnings and strong growth potential. That's why I would say it is still good to hold onto this stock.
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