Cover-More Group Ltd shares surge on soaring profit

Cover-More Group Ltd's (ASX:CVO) full-year profit shows the resilience of its business model with the stock offering something for income and growth-seeking investors.

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There's one stock that's really bucking the big downtrend in the market today. I am talking about travel insurance provider Cover-More Group Ltd (ASX: CVO) as the stock looks poised to retest its record high of $2.49 set in June this year.

The stock rallied 9.4% to $2.44 in late afternoon trade, which looks even more impressive if you consider that the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has crashed by more 2%.

The company got investors excited when it posted a 13.7% surge in normalised net profit to $25.8 million as gross sales increased 8.9% to $466.8 million for the year ended June 30, 2015.

Investors had been worried that Cover-More would post a softer second-half performance as the slumping Australian dollar and other disasters discourage Australians from taking overseas holidays.

But Cover-More's business has proven to be more resilient and diversified than some might have believed with Asian operations achieving a 50% increase in earnings before interest, tax, depreciation and amortisation (EBITDA) on a like-for-like basis.

Asia contributes to 15% of group profit compared with 10% a year ago.

Further, its Australian business is winning market share as it has grown at more than three times the market growth rate.

"In our primary market, Australia, we expect sales momentum to continue, driven by recent contract wins and conversion of a healthy pipeline, while also capturing greater revenue opportunities with existing partners," said its chief executive, Peter Edwards.

Cover-More declared a fully franked 4.1 cent a share final dividend. It paid a 3.2 cent interim dividend and a 1.8 cent special dividend in the first half of the 2014-15 financial year.

The stock will appeal to both income and growth-seeking investors as analysts are expecting the company to pay around 10.5 cents a share for the current financial year, which puts the stock on a yield of nearly 6% once franking is included.

Current consensus forecast is also tipping earnings per share growth of 17.5% for 2015-16 and this implies the stock is trading on a price-earnings multiple of around 25x.

The stock isn't particularly cheap but if management can sustain its growth momentum over the next few years, Cover-More will make an attractive investment at its current price.

Motley Fool contributor Brendon Lau has no position in any stocks mentioned. Follow me on Twitter - https://twitter.com/brenlau The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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