As a shareholder, do you want to become a part owner in 91 Telstra stores and 14 Telstra business centers? These represent 66% of Vita Group Limited's (ASX: VTG) portfolio of stores. The intention is to increase this weighting against other stores which include Fone Zone, One Zero and Next Byte – Apple's premium reseller. Vita Group's activities are the selling and marketing of technology and communication products and services through its retail store brands.
What: The day prior to the release of full-year results for Vita Group its shares were trading at 78 cents. In the three trading days since the shares have hit a high of $1.03 and are currently trading at 99 cents. This represents a gain of 27%.
Why the positive share price reaction?
The current dominant cause de jour for any stock appreciation is sustainable and increasing dividends. The company's dividend payments have trebled over the period FY2012 to FY2014 and have increased 64% in FY2014 to 4.64 cents. Grossed up for franking credits this represents a yield of 6.7%. Other factors propelling the share price higher include:
1. Consistent performance. This is the tenth consecutive half of EBITDA growth.
2. Chasing profitability not scale. While group revenue was up 4%, both underlying NPAT and EBITDA were up 66% and 22% respectively.
3. Results underpinned by the outstanding telecommunications segment, with EBITDA growth of 25%.
4. Improving Next Byte performance. Despite this, the company has suspended further planned store rollouts as higher growth prospects are in prospect as outlined in point 5 below…
5. Outstanding prospects in business to business (B2B) in particular, which is part of the telecommunications segment. Vita Group chief executive Maxine Horne stated that: "We are now well positioned to stake a meaningful footprint in the B2B market… having enhanced our offering to SME and enterprise customers".
What is Vita Group's link to Telstra Corporation Ltd's (ASX: TLS) performance?
Vita Group is a key strategic partner of Telstra. The partnership with Telstra began 18 years ago and will last another five, as well as the potential for extensions contingent on certain benchmarks being met. Implementing Telstra's strategic priorities, including customer advocacy, will result in a pre-arranged sharing of revenues.
Vita also has further alignment toward Telstra, as there are a lot of Telstra referred clients.
Telstra's strong network advantage is an excellent selling point for Vita Group.
