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M2 Group Ltd delivers impressive full-year results: Should you buy?

What: Internet and telecommunications business M2 Group Ltd (ASX: MTU) this morning delivered an impressive 60% growth in underlying net profit for FY 2014.

The group also delivered a final fully franked dividend of 14.5 cents per share, up 4.5 cents or 45% on the corresponding period last year. The full-year dividend totalled 26 cents, up 30% on last year.

Now what: M2’s meteoric rise has been the result of an aggressive management strategy of debt-funded acquisitions, tight cost controls, and organic growth as a result of an aggressive sales strategy. Luckily for investors that strategy appears to be paying off handsomely as management continue to make the right moves in building a communications, utility and insurance services business focused on Australian households and small businesses.

The group organically added 121,000 subscribers to its different services over the year and will aim to improve its reputation for customer service in order to reduce client churn.

The small business division continues to grow, while the consumer segment mainly under the Dodo and iPrimus brands continues to deliver as a low-cost online alternative to competitors like Telstra Corporation Ltd (ASX: TLS).

What of the outlook? Having acquired the Dodo and Eftel businesses in the last financial year net debt now stands at $254.4 million, which is 1.6 times EBITDA of $160.1 million for FY 2014. For a junior telco in a competitive market this is a relatively high level and the company said it remains focused on paying down the debt while maintaining dividend returns to shareholders.

Overlooking the debt there’s no doubt that M2 has again delivered some impressive numbers with the company stating it expects to see revenues up 8%-9% in FY 2015 with net profit forecast to be up 15%-20%. This on the back of the company’s “relentless focus on improving costs” and further sales and marketing driven organic growth.

Selling for $6.86 M2 trades on around 18 times FY 2014’s earnings with a fully franked yield of 3.79%. Given management’s outlook and M2’s position in a growth industry it remains a solid buy in my opinion.

There's no doubt M2 is a good business to consider for growth-oriented investors, but the secret is well and truly out now! If you want to make out-sized returns it's best to look for the M2 of tomorrow not today!

We've found one business that might fit that description, if you're interested in reading all about it  just enter your email and Click here for your FREE copy of "The Motley Fool's Top Stock "

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

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