Here’s why Vita Group Limited shares have gone gangbusters today

Source: Telstra presentation

The shares of telecommunications and IT retailer Vita Group Limited (ASX: VTG) have surged higher by over 15% in early trade following the release of a stellar full year result.

For the year ended June 30 2016 the company delivered a massive 43% increase in net profit after tax to $38 million on a 19% increase in revenue to $645.1 million.

Brisbane-based Vita Group is a national provider of telecommunications, electronics, ICT products and services through retail and business channels. At the end of its financial year it was operating 137 outlets. This comprised 100 Telstra Corporation Ltd (ASX: TLS) retail stores, 21 Telstra Business Centres, 14 One Zero and 2 Fone Zone outlets.

The biggest contributors to the strong performance were its Telstra stores. Strong performances by both its Telstra retail stores and business centres helped take like-for-like store sales growth to 18% in the Retail segment and 8% in its Small to Medium Business (SMB) segment.

The great news here is that management is very confident that both its Retail and SMB segments will continue to drive earnings growth over the next couple of years. With the company’s SMB offering operating in a highly fragmented market, I would have to agree with management’s view that it is positioned perfectly for sustained revenue and profit growth.

Vita Group’s board declared a fully franked dividend of 14 cents per share for the year, which was a 75% increase on last year. At the current price this equates to a fully franked 2.8%. Whilst it isn’t the biggest yield you’ll find on the market, it is still a reasonable one and growing fast.

Earnings per share came in at 23.4 cents, up 34% on FY 2015. This means its shares are changing hands at around 21x full year earnings.

Whilst this might make them slightly more expensive than the likes of JB Hi-Fi Limited (ASX: JBH) and Harvey Norman Holdings Limited (ASX: HVN), I believe they do have stronger growth prospects that justifies this. All in all I believe everything is pointing to Vita Group being a good long-term investment today.

But before you make an investment in Vita Group, I would highly recommend you take a look to see if you own either of these three wealth-destroying shares. Each could be harming your portfolio right now and might be best swapped out.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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