Organic growth remains solid: M2 Telecommunications

M2 Telecommunications (MTU) delivered a result that was modestly ahead of consensus expectations and the stock was surprisingly sold down 17.0% during the month. Pleasingly, organic growth remains solid, operating cash conversion is strong and the balance sheet remains well positioned at about 2x net debt/EBITDA. The MTU board guided to 30-35% reported profit growth in FY16 driven by continued organic growth and a full-year contribution from recent CallPlus acquisition in NZ. There is no doubt some small-cap managers have reduced their positions in MTU during August in anticipation the company would exit the Small Cap Index and be elevated to the S&P/ASX 100 Index. Although this did not eventuate, it remains a possible candidate for promotion at the next index rebalance. We believe MTU looks inexpensive (trading on 12.8x FY16 earnings) and we remain confident the high quality management team will continue to deliver strong results for shareholders. (VIEW LINK)