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Why the Vita Group share price stormed 8% higher today

In early trade the Vita Group Limited (ASX: VTG) share price has been a strong performer following the release of its half year results.

At the time of writing the Telstra Corporation Ltd (ASX: TLS) store operator’s shares are up 8.5% to $1.50.

What happened in the first half?

For the six months to December 31, Vita delivered record revenues of $377 million and earnings before interest, tax, depreciation and amortisation (EBITDA) of $25 million. This was a 14% and 25% increase, respectively, on the prior corresponding period.

The company’s EBITDA was ahead of its guidance range given in October of $23 million to $24.5 million.

Net profit after tax rose 26% on the prior corresponding period to $14.1 million and 20% on a per share basis to 8.8 cents.

Vita ended the period with net cash of $17.2 million thanks to strong cash conversion and disciplined management of working capital.

This allowed the Vita board to declare a 5.2 cents per share interim dividend, up 11% on the same period last year.

What were the drivers of the strong result?

The key driver of its growth was the company’s Information and Communication Technology (ICT) segment. This segment reported robust device and connectivity volumes and growth in revenue from business customers.

This was supported by its Non-Invasive Medical Aesthetics (NIMA) business. Management advised that significant progress has been made preparing the business for future growth. This included the launch of its premium medical aesthetics brand, Artisan Aesthetic Clinics, and the expansion of its portfolio to ten clinics across Queensland, New South Wales, and the Australian Capital Territory.

Vita’s men’s active and lifestyle brand, SQDAthletica, has grown its brand awareness and revenues significantly during the half, but is not yet contributing meaningfully to its financial performance.

The company’s chief executive officer, Maxine Horne, was very pleased with the first half performance.

She said: “We are really pleased to deliver such a strong performance, despite tough conditions in the ICT industry. Our long-term strategic partnership with Telstra remains strong and we will continue to invest in our retail and business channels and enjoy continued profitability and cash flow from this part of our business.”

Before adding: “We are achieving strong momentum across the business and are well positioned for the future. We have a very clear strategy for Vita Group which includes cementing our position as a leader within the industries we operate in. With a strong and talented management team in place and dedicated and highly skilled frontline and support teams, we will continue to execute our strategy at speed and to deliver value for all of our stakeholders.”

No guidance was provided for the second half.

Should you invest?

I thought this was a strong result from Vita and I can’t say I’m surprised to see its shares surge higher today.

Based on this result Vita’s shares are currently changing hands at 10x trailing earnings and offer a trailing fully franked 6.4% dividend yield.

Although I have concerns about how reliant the company is on Telstra, this risk appears to be priced into its shares at this level. Which could make it worth considering a small investment in its shares along with fellow retailers 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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