Internet service provider iiNet Limited (ASX: IIN) reported a solid 11% rise in half-year revenue, but a relatively flat 0.9% increase in underlying net profit after tax.
During the first half of financial year 2015, Australia's second largest DSL internet service provider added a net new 25,000 broadband users to bring its total to 975,000 customers. There was good growth among NBN users as well, now up to 60,000 subscribers.
CEO David Buckingham said, "The acceleration of the NBN rollout and introduction of new technologies to the process, presents the potential for a faster rate of organic growth through an increasing number of new connections per week."
The company has added more products to complement its ISP services such as standalone mobile phone plans and Apple iPhone products, which helped deliver strong top line growth.
Here are the half-year results highlights:
Revenue: $547 million, up 11% on previous corresponding period
Earnings before interest, tax, depreciation and amortisation (EBITDA): underlying EBITDA was $96.6 million, up 1%
Net profit after tax (NPAT): reported NPAT $28.2 million, underlying NPAT $32 million
Earnings per share: reported EPS 18.2 cents per share, up from 18 cps / underlying EPS 19.5 cps, up from 19.4 cps
Dividend per share: interim dividend 10.5 cents per share fully franked, up 17.5%
In September 2014, the company announced the acquisition of a majority interest in Tech2, a technology services solution provider. Tech2 performs on-site and remote technology service support for homes and businesses. This will allow iiNet to provide more comprehensive services to subscribers.
iiNet increased both its interim dividend as well as its dividend payout ratio. The stock yields a healthy 3.4% fully franked, which will become more attractive to income investors as interest rates are cut.
The stock is up about 48% over the past two years and currently trades at 16.4 times forecast earnings. Analysts expect earnings to grow an average 13.7% annually in the next two years, but I am concerned that earnings growth isn't keeping up with revenue increases.
The company is continuing to push into the east coast markets and the NBN rollout has good growth potential in that region as well, so investors will need to see how the second half of financial year 2015 unfolds. iiNet's share price may cool down until firmer profit growth can be seen. I would suggest holding off on the stock as that may open up buying opportunities at better entry prices.
