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Why the Vita Group Limited share price went gangbusters today

The Vita Group Limited (ASX: VTG) share price has surged higher by 12% to $3.32 in morning trade following the release of its half-year results.

Key takeaways from the result include:

  • Revenue increased 8% on the prior corresponding period to $344.1 million.
  • Underlying EBITDA up 15% to $35 million.
  • Net profit after tax increased 10% to $21.4 million.
  • Diluted earnings per share of 14.3 cents.
  • Interim dividend of 9.2 cents per share, up 60% on the prior corresponding period.

Although growth has slowed significantly since this time last year, overall I felt this was a solid result from the operator of Telstra Corporation Ltd (ASX: TLS) retail and business stores.

A key driver of growth was its Small-to-Medium Business (SMB) and Enterprise channels. Sales in the SMB segment rose 35% on the prior corresponding period thanks to a strong performance in all key categories.

Sales in its Enterprise channel grew by 16% due largely to a key contract win. Pleasingly management feels confident that the channel is building a solid customer pipeline that will deliver future returns.

Sales in its Retail channel rose 5%, with growth in its fee income offset by slower growth in its low margin device sales.

What’s next?

Management has targeted improved productivity from its retail network and the continued strong performance of its business channels in the second-half. Furthermore, Vita will increase its retail presence with the acquisition of five more Telstra stores, taking its licensed store portfolio to 107.

However, due to the new commercial terms the company negotiated with the telco giant last year, Vita expects there to be softening of profitability on a per connection basis in the second-half.

Should you invest?

Based on today’s result its shares are changing hands at just over 11x annualised earnings and providing a forecast full-year fully franked 5.6% dividend. I think this is remarkably cheap and makes it an attractive investment option.

But let’s not forget that the second-half is likely to be much tougher than the first due to the new commercial terms it has negotiated with Telstra. So for now investors might want to approach this one with a touch of caution.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. 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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