M2 Group Ltd (ASX: MTU) has been one of the best performing companies on the ASX 200 index in 2014 as shareholders have enjoyed a 33% share price rise along with a dividend of 26 cents per share. While this represents a yield of only 3% based on the current price, long-term shareholders have received a yield of well over 5% based on their purchase price.
Another 33% in 2015?
After such a strong run, shareholders are right to ask whether the group can reasonably expect to grow so strongly in 2015. M2 previously embarked on an aggressive expansion plan that involved the acquisition of many rivals up to the 2013 and 2014 financial years. The 2015 financial year has been mooted as a consolidation year when the group finally starts to realise some efficiency gains brought about by an increase in size.
M2's management team has forecast another 8% to 9% growth in revenue and a 15% to 20% growth in net profit. That impressive ratio of a 2-to-1 profit increase for each dollar of revenue growth is indicative of the scalable business that M2 Group possesses. It also demonstrates that the company believes there's a reasonable amount of fat that can be cut from the current operating budget.
Not all about cutting!
Importantly M2 is demonstrating solid organic growth, as evidenced by the revenue growth, primarily from a reinvigorated Commander brand and the launch of kiosks in major shopping centres aimed at selling bundled home telephone and energy services.
M2 brands- Dodo, iPrimus and Commander- service the major price points for Australian consumers and businesses, and provide the company with a 7% share of the local internet market by subscribers.
M2 is unlike larger rivals Telstra Corporation Ltd (ASX: TLS) and TPG Telecom Ltd (ASX: TPM) in that the group operates an extremely capital-light business model by on-selling Telstra and Optus (owned by Singapore Telecommunications Ltd (CHESS) (ASX: SGT)) internet and voice services under M2 brands.
Analysts expect 2015 will be another good year for the company, with subscriber growth supported by attractive and unique bundle deals that couple phone, internet, energy and insurance needs under the one brand umbrella.
A Positive 2015
Long-term investors have been well rewarded by holding M2 Group shares.
