Junior telecommunication and internet service providers like iiNet Limited (ASX: IIN), TPG Telecom Ltd (ASX: TPM), Vocus Communications Limited (ASX: VOC) and M2 Group Ltd (ASX: MTU) saw success in the last financial year, but past performance counts for nothing when it comes to investing, so here's an overview of their outlook and the best buys based on current valuations.
At $7.41 Perth-based iiNet sells for 16.4 times FY 2015's projected earnings on a yield of 3.3%, based on an estimated payout of 45.1 cents per share in FY 2015. iiNet looks a solid bet on the fibre-optic future of internet connectivity, although shares looks at fair value for the time being.
TPG has certainly been turning it on for investors as slick marketing and attractively priced broadband-internet bundles made it a star performer of recent times. At $5.41 TPG sells for 20.5 times FY 2015's projected earnings on a yield of 1.96%, based on an estimated payout of 10.7 cents per share in FY 2015. It also looks around fair value.
Budget broadband provider M2 Group is the business behind brands like Dodo and Primus, and in a case of the sharemarket imitating life, M2 may be offering the best value to investors. At $5.88 it sells at 10.3 times FY 2015's forecast earnings on a yield of 5.12% based on an estimated payout of 30.1 cents per share in FY 2015. It carries a substantial amount of debt and the price has come off recently perhaps reflecting some disappointment over the latest dividend payout.
Likely less well known to retail investors is Vocus Communications, which provides high-speed, high-capacity, high-security, internet connectivity to corporate clients across Australia. Today it announced a deal to acquire FX Networks, a fibre-optic network provider in New Zealand. It expects the deal to deliver double-digit earnings per share accretion by FY 2016.
No surprise that shares have more than doubled in price in the past year as Vocus possesses the holy trinity of being a junior tech stock with a competitive advantage, economic moat, and strong organic or acquisitive growth potential. Selling for $5.10 it trades on 23 times FY 2015's projected earnings on a yield of 0.64% based on analysts' estimates for dividends. Vocus looks the pick of a fruity bunch.
