The telecommunications (telco) sector has been 'red hot' of late with merger and acquisition activity occurring between the mid-tier players. Specifically, TPG Telecom Ltd (ASX: TPM) took over iiNet, while Vocus Communications Limited (ASX: VOC) merged with Amcom.
Another telco stock which has also seen some action lately but isn't as closely followed by many investors is Macquarie Telecom Group Ltd (ASX: MAQ). This situation may be beginning to change however…
Firstly, the company has found itself attracting the attention of Vocus, which in April grabbed a 16% stake in Macquarie Telecom.
Secondly, the group reported full year results which appear to have pleased the market. Here are the highlights from those results:
- Revenue slipped 2.2% year-on-year to $192.4 million, however, revenue grew half-on-half during the financial year
- The group reported a $0.8 million increase year-on-year in earnings before interest, tax, depreciation and amortisation (EBITDA) to $26.3 million with strong momentum in the second half
- A significant reduction in ongoing maintenance capital expenditure from $20.6 million to $14.7 million
- $25 million cash position and no debt
- A final dividend of 25 cents per share (cps) was declared. The stock will trade ex-dividend on September 11 with payment on October 13. An interim dividend of 12 cps was also paid during the year, both dividends are fully franked.
This combination of factors has led to Macquarie Telecom's share price soaring over the past year and resulting in significant outperformance against the stalwart of the industry Telstra Corporation Ltd (ASX: TLS).
In fact, Macquarie Telecom's shares rallied last week to a new one-year high of $8.20 before closing Friday's session at $8.10 – the stock has now gained around 70% in the past year. Meanwhile, the share price of Telstra has gained just 2% over the last 12 months.
Macquarie Telecom's management provided the following guidance for the current financial year:
"For fiscal 2016, EBITDA is expected to be in the range of $28 million to $32 million after taking into account approximately $3 million lease charge for Intellicentre 2. Depreciation is expected to be between $24 million and $26 million. Maintenance capital is expected to be in the region of $14 million to $17 million."
With Macquarie Telecom set to grow earnings this year and with Telstra expected to face plenty of competitive pressures on its business operations, Macquarie Telecom could quite possibly continue to outperform.
