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M2 Group Ltd confirms full-year profit guidance: Is it cheap?

Junior telecommunications business M2 Group Ltd (ASX: MTU) confirmed on Friday that it expects to achieve financial-year 2014 earnings results at approximately the mid-point of guidance for EBITDA between $150-$170 million and net profit after tax between $60-$70 million.

The fast-growing telco pushed further into the budget broadband market last year with the acquisition of Dodo and Eftel alongside the earlier purchase of iPrimus. For broadband internet and telecommunication services M2 is operating in an extremely competitive market against the likes of Telstra Corporation Ltd (ASX: TLS), iiNet Limited (ASX: IIN) and TPG Telecom Ltd (ASX: TPM). M2 grew post paid broadband subscribers by 17% for the half year ending June 30, but the fly in the ointment remains another drop in post paid mobile services subscribers. The drop in mobile subscribers over the past year was put down to an outdated 3G product, however the company says the decline has slowed since the release of a 4G product in February 2014.

Investor nervousness over the declines in mobile subscriber growth combined with disappointment over the level of the most recent interim dividend payout are probably the two main contributory factors to Friday’s $5.95 closing price. If sentiment turns and the company returns to strong organic growth on the back of successful new products, sales and marketing, then it won’t last long at today’s valuations.

The below company may be an even better option than M2. In fact directors have been buying shares themselves at not far below today's prices. Directors are unlikely to buy shares in a business they run unless they're confident in the long-term outlook!

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Motley Fool contributor Tom Richardson owns shares in M2 Group, Telstra and iiNet. You can find him on Twitter @tommyr345

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