For most investors, when they hear the words investing and telecommunications (telco) in the same sentence their immediate response is most likely Telstra Corporation Ltd (ASX: TLS).
However for a number of reasons including the following three outlined below, investors would arguably be better off responding with the words iiNet Limited (ASX: IIN)…
1. Records smashed
In FY 2014 iiNet delivered another record result. Revenue grew 7% and for the first time surpassed the $1 billion mark. Meanwhile the fully franked dividend was boosted by 16% to 22 cents per share.
2. Impressive market position
With a market capitalisation of $1.36 billion, iiNet sits in the middle of the range for "second-tier" telcos. Despite this, the group can boast of being "the clear 'number 2' broadband DSL provider and the third-largest provider of residential fixed broadband services in Australia."
3. Organic and acquisitive growth
In FY 2014, iiNet added over 40,000 broadband accounts via organic channels. Another highlight of FY 2014 for the group was the $60 million acquisition of Adelaide-based Adam Internet. Together, organic and inorganic growth has helped iiNet grow its broadband customer numbers to nearly one million.
The better bet
An investment in iiNet has achieved a total shareholder return over the past five years of 43% per annum and achieved a return on equity of 19% in FY 2014. With management forecasting "more growth to come" in FY 2015 the outlook for this energetic telco is positive.
What's more,(according to consensus data from Morningstar) looking two years out, iiNet is expected to grow earnings per share (EPS) by 15%. In contrast, Telstra is forecast to grow EPS by just 8%. Assuming each company achieves these forecasts, iiNet is trading on a FY 2016 price-to-earnings (PE) ratio of 15.3x, compared with a PE of 16x for Telstra.
