iiNet Limited (ASX: IIN) and TPG Telecom Ltd (ASX: TPM) have received all the headlines, but M2 Group Ltd (ASX: MTU) could be the next telco to be taken over.
TPG's takeover of iiNet is just the latest step in the consolidation of the telecommunications sector, but experts believe we are far from done yet.
NBN Co director Simon Hackett recently speculated that Vodafone Hutchison Australia – 50% owned by Hutchison Telecommunications (Aus) Ltd (ASX: HTA) would be next, to give the telcos exposure to mobile telephony.
iiNet founder Michael Malone recently predicted that there would be just three fixed line broadband providers within the next 12 months. With Telstra Corporation Ltd (ASX: TLS), Singapore Telecommunications Ltd's (ASX: SGT) Optus and the combined TPG/iiNet Group as the 'big three', that leave no room for M2.
Certainly the market thinks M2 has a part to play in further consolidation in the sector, with shares jumping 28% in the past three months. With a trailing P/E ratio of 25x and a tiny dividend yield of 2.9%, shares don't appear cheap anymore.
That may also have been due to the company's 23% jump in earnings per share for the six months to December 2015, or M2's forecast for net profit growth of between 15% and 20% for the full year. After acquiring internet businesses Dodo, Primus and Eftel, M2 has been generating strong organic growth, as well as taking full advantage of the synergies those acquisitions brought.
For Foolish investors looking for strong growth and the bonus of a small, but growing fully-franked dividend, M2 Group could be one stock to add to your watchlist. And that dividend has plenty of room to grow, with M2 only paying out 50% of earnings last financial year.
Today's share price may look very cheap, if the company can continue to generate growing earnings.
If a takeover offer does come, that's would be a cherry on top and we wouldn't suggest buying into M2 solely on that basis.
