It appears the reporting season has been wiped from investors' minds as fears of a slowdown in the global economy takes centre stage.
For long term investors, the recent pull-back in the market has presented some exciting buying opportunities for companies, who only weeks ago, produced excellent profit results and positive growth outlooks.
Two such stocks are travel insurer Cover-More Group Ltd (ASX: CVO) and telecommunications provider M2 Group Ltd (ASX: MTU).
Cover-More Group Ltd
Cover-More is a leading integrated travel insurance and medical assistance business. It has strong partnerships with some of the leading travel companies throughout the world and this provides a number of strategic channels to distribute its products.
Cover-More's strategy has proven successful so far and its most recent earnings results have further confirmed this. Gross revenues increased by 8.9% to $466.8 million and more importantly, net profit after tax (NPAT) increased by 13.7% to $25.8 million. Pleasingly for investors, gross margins improved by more than 1.1% over the period and costs remained well controlled during a period of strong investment.
One of the biggest drivers of Cover-More's growth moving forward will be its international operations. Although the Australian business still makes up the bulk of the company's earnings, Cover-More is rapidly expanding into other markets. It has been able to deliver sales growth of 34.5% in New Zealand, 28.3% in the UK and 32.5% in India. This compares to growth of just 6.3% in the Australian market – although the total domestic insurance market increased by only 1.8%.
From a valuation point of view, Cover-More still appears to offer reasonable value to long term investors. Although the shares are trading on a price-to-earnings ratio of around 27, FY16 is likely to be another positive year with strong momentum continuing through new distribution partnerships, increasing international expansion and continued domestic out-performance. There are a number of industry tailwinds behind Cover-More and this should see the company continue to grow for many years to come.
M2 Group Ltd
M2 has been one of the best performing telecommunication stocks over the past 10 years and has delivered, on average, 46.3% each year over the last 10 years to investors.
M2 once again delivered another strong profit result recently, with underlying earnings per share increasing by 16% and it also rewarded shareholders with a 23% increase in the dividend for FY15.
The most impressive aspect of this result was that the majority of earnings growth resulted from organic growth. Its only acquisition for the year was the New Zealand-based CallPlus, which only contributed one month's worth of earnings. M2 Group achieved especially strong growth in fixed voice and broadband services and these segments are expected to continue to grow at high double digit rates in the short to medium term.
Importantly for investors, the positive earnings momentum is forecast to continue in FY16, with management guiding for revenue growth of around 25% and NPAT growth of between 30%-35%.
With the share price falling nearly 25% from its yearly highs, M2 Group now appears to be attractively valued. Based on FY16 estimates, the shares are trading on a forward price-to-earnings ratio of around 13 and investors can expect to receive a fully franked dividend yield of more than 4%.
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