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Vita Group share price drops lower despite Telstra agreement extension

The Vita Group Limited (ASX: VTG) share price has drifted lower in early afternoon trade despite the release of a positive announcement this morning.

At the time of writing the Telstra Corporation Ltd (ASX: TLS) retail store operator’s shares are down almost 2% to $1.05.

What was announced this morning?

This morning Vita advised that after achieving the telco giant’s FY 2018 performance criteria, as per its agreement, its Telstra Dealer Agreement and Master Licence has been extended and rolled on for a further year through to June 30 2024.

Vita’s management believes that this extension demonstrates confidence in the long-standing partnership between the two companies, as well as Vita’s ability to consistently execute strongly in market.

The company’s CEO, Maxine Horne, stated: “We are very pleased with the extension of our agreement with Telstra. Our team continues to deliver against Telstra’s performance expectations, and we remain focused on ensuring that our partnership remains strategically aligned and operationally strong.”

Looking ahead, Horne believes that Vita can play a role in helping Telstra achieve its T22 goals.

She said: “Our role is to support Telstra in achieving its strategic and performance objectives, including the delivery of their T22 plan. This extension reflects the confidence Telstra continues to place in Vita Group to deliver results in line with our shared goals.”

Should you invest?

I’m not a fan of companies that are so reliant on another party like Vita is with Telstra, so it isn’t a share that I plan to buy.

But I must admit that at 7.5x earnings it does look attractive, especially given its first half earnings before interest and tax guidance of between $18 million and $19.4 million. This will be an increase of between 15% and 24% on the prior corresponding period.

However, I’d rather invest in top retail shares that control their own destinies such as Accent Group Ltd (ASX: AX1) and Super Retail Group Ltd (ASX: SUL).

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of Super Retail Group Limited. The Motley Fool Australia has recommended Accent Group. 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 Scott Phillips.

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