M2: Result 2015
Recommendation
It may have missed out on buying iiNet, but today's full-year result suggests that M2 Group is growing pretty well on its own.
Revenue for the year to 30 June rose 9% to $1.12 billion and underlying net profit rose 17% to $100m. The biggest growth in dollar terms was in Broadband, where services in operation (SIOs) rose $48m (or 10%) to $530m; but in percentage terms the fastest grower was the Energy retailing business, where SIOs increased by 25% to 116,000.
2015 | 2014 | /(–) (%) | |
---|---|---|---|
Revenue ($m) | 1,116 | 1,024 | 9 |
U'lying net profit ($m) | 100.2 | 93.3 | 7 |
U'lying EPS (c) | 55.2 | 47.6 | 16 |
DPS (c) | 32.0 | 26.0 | 23 |
Final dividend | 17 cents fully franked, ex date 5 Oct |
That's still only 7% of the total 1,671 services in operation, but the Energy business's significance is boosted by its rapid growth and the fact that it makes average revenue per user of $109 per month, compared to more like $50 for M2's telephony products.
Growth in 2016 is expected to be augmented by the acquisition of New Zealand's third-largest internet service provider, Call Plus Group, which is expected to contribute revenue of NZ$250m in its first full year of ownership.
Management expects this to result in 24–26% growth in revenue in 2016 and 30–35% growth in the reported net profit of $73.7m. That would give a 2016 reported net profit of about $98m and an underlying net profit of about $115m.
After excluding transaction costs and the amortisation of acquired customer contracts, that amounts to a rise in underlying net profit of about 15%, to $115m, for underlying earnings per share of about 63 cents per share, up around 14% from the 55.2 cents reported today.
With the stock down 14% since TPG ups bid for iiNet on 7 May 15 (Hold – $11.11) and 16% since M2 buys NZ's Call Plus on 14 Apr 15 (Hold – $11.41), that puts it on a multiple of about 17 times the earnings just reported and 15 times those expected for 2016. HOLD.