# MTU - M2 Group



## kr1zh (9 December 2009)

I could not find MTU thread so here is posting about MTU.

M2 Telecommunications Group Limited (MTU) is Australia’s largest network independent provider of fixed-line, mobile & data telecommunications services. MTU also provides fixedline & 3G mobile services in New Zealand.

M2’s retail business offers a suite of unique bundled valueadd telco services mainly for SME through a multi-brand strategy including Commander, People Telecom, Southern Cross Telco and M2 Telecom, each offering unique propositions through dedicated third party dealer channels.

“M2 Wholesale” supplies wholesale telco services to small and medium sized telco service providers & Internet Service Providers (ISP’s); Australia’s largest independent data wholesaler, Wholesale Communications Group, and CDR’s network services group, Unitel, were added in 2007 & 2008.

Recommendations:
http://m2.com.au/docs/investor/Lodge-Partners-mtu_20091112.pdf
http://m2.com.au/docs/investor/M2 Telecommunications Group - Intersuisse - 27 August 2009.pdf


reference:
http://m2.com.au/investor-centre/asx-announcements/


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## ubtheboss (25 November 2010)

*Re: MTU - M2 Telecommunications Group*

This company has had some incredible growth in the last 2 years.  It seems to be meeting a little bit of resistance at the current sp.  Anyone else following this?


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## moreld (28 February 2011)

*Re: MTU - M2 Telecommunications Group*

I find it incredible that despite M2's amazing performance as a company and a stock that it is getting so little interest here.
Here is my latest thinking on their 2011 1H. http://www.fusioninvesting.com/2011/02/m2-telecommunications-a-true-leader/

Net margin and ROE improving as they develop scale.  
9 years of growth behind them and more to come.
Dividend up 40%.
Underlying profit up 37%.


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## VSntchr (28 July 2011)

*Re: MTU - M2 Telecommunications Group*



moreld said:


> I find it incredible that despite M2's amazing performance as a company and a stock that it is getting so little interest here.
> Here is my latest thinking on their 2011 1H. http://www.fusioninvesting.com/2011/02/m2-telecommunications-a-true-leader/
> 
> Net margin and ROE improving as they develop scale.
> ...




Agree. Have been biding my time on this one and today I caught the falling knife.


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## skc (28 July 2011)

*Re: MTU - M2 Telecommunications Group*



moreld said:


> I find it incredible that despite M2's amazing performance as a company and a stock that it is getting so little interest here.
> Here is my latest thinking on their 2011 1H. http://www.fusioninvesting.com/2011/02/m2-telecommunications-a-true-leader/
> 
> Net margin and ROE improving as they develop scale.
> ...




It's a great company but not a cheap company. $400m market cap on $25m NPAT or PE~16 when the market is trading ~12.

The market has been marking down all the smaller ISP players - IIN, TPM and AMM are all down a fair bit from recent highs... 

Can MTU keep up the growth in the post NBN world?


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## VSntchr (28 July 2011)

*Re: MTU - M2 Telecommunications Group*



skc said:


> It's a great company but not a cheap company. $400m market cap on $25m NPAT or PE~16 when the market is trading ~12.
> 
> The market has been marking down all the smaller ISP players - IIN, TPM and AMM are all down a fair bit from recent highs...
> 
> Can MTU keep up the growth in the post NBN world?




MTU focuses on SMB section 8/10 currently of which are taken care of by telstra, who focus on retail and high end corporate. So with MTU's target area not receiving much attention from telstra I believe MTU have scope to take some of this 80% share.
They have said that the NBN will not alter their model greatly...


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## Tyler (4 August 2011)

*Re: MTU - M2 Telecommunications Group*



VSntchr said:


> MTU focuses on SMB section 8/10 currently of which are taken care of by telstra, who focus on retail and high end corporate. So with MTU's target area not receiving much attention from telstra I believe MTU have scope to take some of this 80% share.
> They have said that the NBN will not alter their model greatly...




do you ask the barber if you need a haircut?


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## VSntchr (4 August 2011)

*Re: MTU - M2 Telecommunications Group*



Tyler said:


> do you ask the barber if you need a haircut?




Relevance?


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## robusta (10 August 2011)

*Re: MTU - M2 Telecommunications Group*

A month ago I was looking at MTU and thinking if only in fell below $3.00 I would buy some, well at $2.62 on Monday I could no longer resist.
A nice history of growth, good ROE and bright prospects. Once again this is a business that can increase revenue and NPAT with very little capital expenditure required.


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## fanger (11 August 2011)

*Re: MTU - M2 Telecommunications Group*



robusta said:


> A month ago I was looking at MTU and thinking if only in fell below $3.00 I would buy some, well at $2.62 on Monday I could no longer resist.
> A nice history of growth, good ROE and bright prospects. Once again this is a business that can increase revenue and NPAT with very little capital expenditure required.




Nice trade robusta I wasn't so lucky and picked it up just before all the **** started at $3.20


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## robusta (29 August 2011)

*Re: MTU - M2 Telecommunications Group*

Well just got home to see;
NPAT up 72%
EPS up 56%
Guidance for higher revenue and improved margins
Dividend up 80%
SP down 6.51%   

Will have to read the report for any hidden nasties otherwise all I can think of is change of management caused the (minor) sell off.


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## skc (29 August 2011)

*Re: MTU - M2 Telecommunications Group*



robusta said:


> Well just got home to see;
> NPAT up 72%
> EPS up 56%
> Guidance for higher revenue and improved margins
> ...




Read it again... guidance is for lower revenue and higher margin. The share price is marked down probably because of this strange looking guidance. Revenue down 6% on deliberate exit of low margin business, but somehow EBITDA margin will increase from current 11.3% to 15% at the same time. That is a very large jump in margin and difficult to see the levers for pulling out such a feat. 

The management change isn't a big issue. It's an internal replacement with plenty of knowledge of the company plus the MD is moving to become exe director anyway.

MTU's current PE multiple is not that much different to her peers (IIN, AMM, TPM) and seems to be how the market value second tier telcos in the pre-NBN world.


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## skc (30 August 2011)

*Re: MTU - M2 Telecommunications Group*



skc said:


> The management change isn't a big issue. It's an internal replacement with plenty of knowledge of the company plus the MD is moving to become exe director anyway.




Or may be it is according to the Australian.

http://www.theaustralian.com.au/bus...after-golden-run/story-e6frg9lo-1226124852044



> M2 Telecommunications (MTU) $2.73: M2 chief executive and founder Vaughan Bowen now knows what investors thinks he's worth -- $23 million, the decline in M2's market cap after Bowen yesterday said he would step aside after 12 years in the chair, ceding to right-hand man Geoff Horth.


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## robusta (30 August 2011)

*Re: MTU - M2 Telecommunications Group*



skc said:


> Read it again... guidance is for lower revenue and higher margin. The share price is marked down probably because of this strange looking guidance. Revenue down 6% on deliberate exit of low margin business, but somehow EBITDA margin will increase from current 11.3% to 15% at the same time. That is a very large jump in margin and difficult to see the levers for pulling out such a feat.




Not sure about that. The 72% earnings increase was on a revenue increase of only 5% from the PCP.

MTU seems to have the ability to wring more margin out of revenue IMO.



skc said:


> Or may be it is according to the Australian.
> 
> http://www.theaustralian.com.au/bus...after-golden-run/story-e6frg9lo-1226124852044




As a holder I look forward to seeing how the new bloke goes.


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## robusta (2 November 2011)

*Re: MTU - M2 Telecommunications Group*

Normally not a fan of businesses growing by acquisitions but MTU seem to have got it right so far.

Here is a story on potentual directions.

http://www.theaustralian.com.au/aus...eks-acquisitions/story-e6frganx-1226178601911


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## kr1zh (2 November 2011)

*Re: MTU - M2 Telecommunications Group*

Here I attached the short term chart and FY11 achievement and FY12 Forecast.


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## fanger (18 January 2012)

*Re: MTU - M2 Telecommunications Group*

mtu having a great run over the last month


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## notting (18 January 2012)

*Re: MTU - M2 Telecommunications Group*



fanger said:


> mtu having a great run over the last month




How about a great run over the last 10 years!!!!!! with pocket money added!:jump:


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## CharlieShort (26 January 2012)

*Re: MTU - M2 Telecommunications Group*

All new to the forum and re entering the market after a long absence.  I have been monitoring MTU for a while however am unable to ID any reason for the .12 share price drop on Wednesday. I would appreciate any informed views on possible reasons.


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## notting (26 January 2012)

*Re: MTU - M2 Telecommunications Group*

Simple, It's a defensive(which is a bit of a joke when you consider how well it's done in all environments) and Wednesday was the most bullish day we have had in months!!
So, trend was, out of defense into risk.
MTU has also had a good run of late.
Some techies may say it's a good entry point as it has broken through recent resistence,  However there is a little more resistence up there are 3.40 so do the risk reward number crunching if your a short term a.
Techies may not like the volume spike on the downturn as well as the low finish.  Give it a few days I'd say.
But I'm no techie!


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## CharlieShort (26 January 2012)

*Re: MTU - M2 Telecommunications Group*

Thanks Notting, basically a bit of good old fashioned profit taking and of course the market being the market!


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## Nutmeg (21 February 2012)

*Re: MTU - M2 Telecommunications Group*



ubtheboss said:


> This company has had some incredible growth in the last 2 years.  It seems to be meeting a little bit of resistance at the current sp.  Anyone else following this?




I own it.  I think it's a stellar stock.  It reports on 27 February.  I expect it will slightly exceed estimates.  The entire telco sector has shone this reporting season unlike some of the mining services and IT services companies that I own.  Anyone else share this view?


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## Nutmeg (27 February 2012)

*MTU - M2 Telecommunications Group - 1H12 Profit Up 45%*

A stellar result!


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## PinguPingu (4 April 2012)

*Re: MTU - M2 Telecommunications Group*

Quite a selloff today, odd considering the market depth.


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## Nutmeg (16 April 2012)

*Re: MTU - M2 Telecommunications Group*

A very generous renounceable rights offer made public today: $2.66 a share for every four shares presently held.  Any one want to sell me their rights?


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## craft (16 April 2012)

*Re: MTU - M2 Telecommunications Group*

Does anybody know what the latest is in regard to determining the CGT base if selling your entitlement?


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## herzy (16 April 2012)

*Re: MTU - M2 Telecommunications Group*

Ahh I really wanted to get into MTU but the entry price seems a little high at the moment. Any chance I could buy someone's rights?


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## kenny (16 April 2012)

*Re: MTU - M2 Telecommunications Group*

The rights will be traded, Herzy. You should have no trouble picking up some on market.

Regards,

Kenny




> The key dates for the Entitlement Offer are:
> Entitlement Offer announced Monday, 16 April 2012
> Ex date and rights trading commences Wednesday, 18 April 2012
> Record date for Entitlement Offer 7pm on Tuesday, 24 April 2012
> ...


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## Nutmeg (16 April 2012)

*Re: MTU - M2 Telecommunications Group*

Does anyone have any view on the Primus acquisition?  It looks pretty good to me.  But of course the risk is always whether the acquiring entity is paying to much for the acquired entity.  That doesn't seem to be the case here and MTU has a history of making sensible acquisitions but I'd welcome any views people have who may have run the numbers.


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## Klogg (16 April 2012)

*Re: MTU - M2 Telecommunications Group*

I've only had a few minutes to look at them (will have a better look after work), but I was fairly impressed with the numbers I saw.


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## clinta44 (16 April 2012)

*Re: MTU - M2 Telecommunications Group*



Nutmeg said:


> Does anyone have any view on the Primus acquisition?




I've been looking to purchase MTU for a few years and never pulled the trigger, today I am happy that I never purchased.

I haven't looked into the figures to judge whether they paid a fair price for Primus. Strategically the acquisition made sense. 

However - the $82.1 Million entitlement offer makes it a dud deal IMO. 

Just over 31 Million new shares (approx 25%) - this instantly dilutes your holding... not only that, the offer the entitlement at a 23% discount to its Friday share price! Current holders should grab a hold of there ankles and brace for impact. Management should have aimed for at least the share price at close not a share price that has a good discount on it.  

EPS has had a descent run over the last few years 

2008 - $0.07
2009 - $0.09
2010 - $0.14
2011 - $0.22

Now I am concerned how this will tract over the next five years…. Time will tell whether I am right or wrong, but if Warren Buffett struggles to find value in acquisitions through issuing shares I don’t think MTU can find the value in it either.

On a side note - I've only been watching this company since 2008 - if this acqusition strategy has been used in the past I would like to know how successful it was - partciularly if the acquisition was made 5+ years ago


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## craft (16 April 2012)

*Re: MTU - M2 Telecommunications Group*



clinta44 said:


> I've been looking to purchase MTU for a few years and never pulled the trigger, today I am happy that I never purchased.
> 
> I haven't looked into the figures to judge whether they paid a fair price for Primus. Strategically the acquisition made sense.
> 
> ...




It’s a renounceable rights offer. It is not diluting anybody. It is forcing shareholders to stump up or alternatively sell their entitlements if they are happy to dilute themselves.

Whether the acquisition makes sense is the big question.

Some of the current selling could be people freeing funds to take up entitlement.


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## Muschu (16 April 2012)

*Re: MTU - M2 Telecommunications Group*

Are there ASF members who have decided whether or not to take up this entitlement or not?  

I hold MTU, was away today and only just saw this announcement.


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## herzy (16 April 2012)

*Re: MTU - M2 Telecommunications Group*



craft said:


> It’s a renounceable rights offer. It is not diluting anybody. It is forcing shareholders to stump up or alternatively sell their entitlements if they are happy to dilute themselves.
> 
> Whether the acquisition makes sense is the big question.
> 
> Some of the current selling could be people freeing funds to take up entitlement.




 Could you please explain this? (Genuine question from a newbie)


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## robusta (16 April 2012)

*Re: MTU - M2 Telecommunications Group*

Given MTU has a good record of buying businesses I think I will take up the offer in my super and personal accounts. 

I have a particular interest is seeing the numbers from the data centers and metro fibre rings.


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## craft (16 April 2012)

*Re: MTU - M2 Telecommunications Group*



herzy said:


> Could you please explain this? (Genuine question from a newbie)




Maybe not.

Renounceable entitlement offers don’t dilute shareholders because shareholders have the chance to participate in proportion to their current holdings.

There is no shares being sold to the vendors or offered to institutional investors via placement etc.

A current shareholder may be diluted, but only if they sell their entitlements for which they will receive compensation or fail to take any action at all.

I don’t see how people think a renounceable entitlement offer is dilution so I am probably not answering your question at all – If you give me something specific, I will clarify.


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## craft (16 April 2012)

*Re: MTU - M2 Telecommunications Group*



Muschu said:


> Are there ASF members who have decided whether or not to take up this entitlement or not?
> 
> I hold MTU, was away today and only just saw this announcement.




I am tending towards selling my rights. Not entily sure that I want to be adding at $2.66 plus entitlement price. need to consider what price the entitlement trades at before making final decision. 

My decison will be as much to do with personal position as it is to do with the company


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## craft (16 April 2012)

*Re: MTU - M2 Telecommunications Group*



craft said:


> Does anybody know what the latest is in regard to determining the CGT base if selling your entitlement?




As best as I can determine the CGT base if entitlements are sold will be $0.00. No proportioning of the original cost base needed. The CGT date will be the date of original purchase and discount available is based on those dates.


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## Nutmeg (16 April 2012)

*Re: MTU - M2 Telecommunications Group*



craft said:


> I am tending towards selling my rights. Not entily sure that I want to be adding at $2.66 plus entitlement price.




What's the entitlement price?  And how much is it?


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## craft (16 April 2012)

*Re: MTU - M2 Telecommunications Group*



Nutmeg said:


> What's the entitlement price?  And how much is it?




The entitlement or right is to buy 1 share for every 4 owned

Rights trading will commence Wednesday 18th April through to Friday 4th May.

Rights will trade at approx the difference between the ex right (18 April) share price and $2.66.

Theoretical Ex price based on today’s close of $3.33 is $3.196 so if rights were trading today they should have closed at around 54 cents


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## tinhat (16 April 2012)

*Re: MTU - M2 Telecommunications Group*

Page 7 of the offer booklet states that the rights will be traded on the ASX from the 18th April to the 4th May. How does this work?

I'm interested in buying entitlement rights. I owned MTU until I got stopped out last year.  Never bought back in but I'm impressed with this company.

Interestingly, the M2 website seems to be down for me at the moment.

[edit]

OK I read further on, so stock owners can instruct their broker to put their entitlement (or a portion) onto the market. I assume that the ASX will issue a temporary code for these? Am I right in assuming that people can buy the entitlement rights on the ASX and will then have to write a cheque to the offer manager for the actual amount of the shares ($2.66) or will that be rolled up into the purchase of the entitlements; ie, you buy the entitlement and pay for the share all via the ASX trade?


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## herzy (17 April 2012)

*Re: MTU - M2 Telecommunications Group*



craft said:


> Maybe not.
> 
> Renounceable entitlement offers don’t dilute shareholders because shareholders have the chance to participate in proportion to their current holdings.
> 
> ...




Thanks craft, that did actually clarify things! No need to undersell yourself (no pun intended). In a perhaps simplistic view, I saw share dilution as meaning that there were simply more shares (each share represented a slightly smaller percentage of the company than before). While under a renounceable entitlement offer it may be true that there will be more shares, given that shareholders will receive some benefit (either entitlement price, or reduced share price), there will be no capitol loss for the shareholder, even if each individual share may be worth less. Hopefully my understanding of this is correct...


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## notting (17 April 2012)

*Re: MTU - M2 Telecommunications Group*

If they are using the money raised to buy something that is earnings accretive it is also not delusionary, I mean dilutionary.


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## skc (17 April 2012)

*Re: MTU - M2 Telecommunications Group*



tinhat said:


> Page 7 of the offer booklet states that the rights will be traded on the ASX from the 18th April to the 4th May. How does this work?
> 
> I'm interested in buying entitlement rights. I owned MTU until I got stopped out last year.  Never bought back in but I'm impressed with this company.
> 
> ...




You buy the entitlement on market like you do with normal shares, usually the code is simply adding a R to the ASX code (i.e. MTUR). You pay only the price for the rights at the time of purchase. 

During the trading period you can buy and sell these rights, again like normal shares.
Anytime before the close of the offer, you can elect to take up these rights by paying the subscription price. The actual process to take up the rights depend on your broker, but I'd imagine they either send you a letter or you call up your broker and tell them you want to subscribe (and have the cash ready).

You can always let your rights lapse if you no longer wish to subscribe after the trading period has ended. You may do that because the share price has fallen below the subscription price, for example.

The use of renounceable rights isn't really a cheaper way to enter the stock, assuming the rights trade at a sensible price. As a general rule, the right would usually trade around the share price minus the subscription price. So the benefit for you is that you has a lower capital outlay initially, and you gain a slight "option-style" value if you no longer wish to buy the share. Offset against that is that risk that, between paying to take up the rights and actually receiving the new shares (and be able to trade them) there's a period where you do not have control to your position.


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## clinta44 (17 April 2012)

*Re: MTU - M2 Telecommunications Group*



notting said:


> If they are using the money raised to buy something that is earnings accretive it is also not delusionary, I mean dilutionary.




Thats what I was trying to get at - The only way there is no dilution is if the acquisition is EPS accretive and in my entire life I’ve not seen many of those. 

time will tell I suppose ...


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## Muschu (18 April 2012)

*Re: MTU - M2 Telecommunications Group*



clinta44 said:


> Thats what I was trying to get at - The only way there is no dilution is if the acquisition is EPS accretive and in my entire life I’ve not seen many of those.
> 
> time will tell I suppose ...




MTU is certainly having an OK day today [atm anyway].... Up 4% while XAO up 1.2%.  There seem to be pleny of buyers.


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## craft (18 April 2012)

*Re: MTU - M2 Telecommunications Group*



Muschu said:


> MTU is certainly having an OK day today [atm anyway].... Up 4% while XAO up 1.2%.  There seem to be pleny of buyers.




When you consider it is selling ex-rights today which is worth around 15 cents per share (with the rights selling at 60 cents) then this morning’s jump is even bigger. I sold some of my holdings into it this morning.  The rights give me some option’s too either replace or confirm the reduction in exposure by selling the rights.

Ps selling rights before they are allocated in Chess is a pain in the .... It requires a human - how old fashioned.


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## brianwh (18 April 2012)

*Re: MTU - M2 Telecommunications Group*

If you buy MTU today, do you get the rights option?


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## tinhat (18 April 2012)

*Re: MTU - M2 Telecommunications Group*



brianwh said:


> If you buy MTU today, do you get the rights option?




No.

I'm not going to buy in at these prices. Pitty I didn't buy back in at the low in November 2011.


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## robusta (19 April 2012)

*Re: MTU - M2 Telecommunications Group*

Just a question about the rights issue. They do not appear in my holdings with either of my brokers, (i hold in my SMSF and personal accounts)

I have not filled out the form to trade options I wonder if this makes a difference?

Does anyone know the code for the options?


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## Klogg (19 April 2012)

*Re: MTU - M2 Telecommunications Group*



robusta said:


> Just a question about the rights issue. They do not appear in my holdings with either of my brokers, (i hold in my SMSF and personal accounts)
> 
> I have not filled out the form to trade options I wonder if this makes a difference?
> 
> Does anyone know the code for the options?




The code should appear as MTUR - or atleast that's what it shows in ComSec. However, they don't appear in my holdings also...

I haven't noticed anything in the documentation I've been sent thus far about the amount I own though - so I guess I have the same question as you on that front robusta.


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## craft (19 April 2012)

*Re: MTU - M2 Telecommunications Group*



robusta said:


> Just a question about the rights issue. They do not appear in my holdings with either of my brokers, (i hold in my SMSF and personal accounts)
> 
> I have not filled out the form to trade options I wonder if this makes a difference?
> 
> Does anyone know the code for the options?




I was told they should appear in Chess Holdings tomorrow. 2 Days after the EX date which was the 18th.  I sold some on Wednesday but had to get Comsec desk to enter the order for me as the online systems stops you due to insufficent chess holdings. 

Comsec don't get much good press but I found them very helpful on this occassion. They were happy that entitlements would arrive before T+3 or would sort it for me if they didn't and even hounoured the 0.12% online brokerage rate.


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## robusta (19 April 2012)

*Re: MTU - M2 Telecommunications Group*

Cheers thank you for that craft.


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## Ves (21 April 2012)

*Re: MTU - M2 Telecommunications Group*

I don't own MTU, and haven't really planned on buying any.  But this acquisition doesn't look all that great on paper.

They're essentially paying $183m for a company that earned a profit of $10.3m. If you can believe the synergies (at $5m a year) that's $15m added to the bottom line. You could argue that this increases their customer base and that they gain infrastructure. Perhaps they can drag some added hidden earnings out of Primus.

My calculations are that equity will be around $185m after this acquisition (I haven't added the DRP back either) and that profit will be around $39m (or $43m will amortisation).

ROE will be around 20% (or 23% if you add back the amortisation costs). 

Revenue looks fairly flat and it looks like their NPAT has seen an increase by increasing gross sales margins more than anything over the last two years (did they change their business model?). Cost reduction and synergies are short term earnings drivers in my opinion.

It looks feasible that the higher ROE (mid to high 20s) of the past was due to a high period of business growth and it is becoming harder to sustain as the company grows its revenue base.

Am I missing something?


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## tinhat (21 April 2012)

*Re: MTU - M2 Telecommunications Group*

Another thing about the acquisition is that Primus has a retail business and MTU have not been in the retail space until now.


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## Ves (22 April 2012)

*Re: MTU - M2 Telecommunications Group*



tinhat said:


> Another thing about the acquisition is that Primus has a retail business and MTU have not been in the retail space until now.



I think the main question in regards to this expansion is: Do you think they will be able to win (or even keep) market share against the other (bigger) players?  

Double-edged sword in my eyes.


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## robusta (22 April 2012)

*Re: MTU - M2 Telecommunications Group*

These guy's have sales built into their DNA every business they have aquired has performed well  and they manage to do it with Aussie call centers, just my opinion but the retail customer will appreciate this as much as the business customer.


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## craft (22 April 2012)

*Re: MTU - M2 Telecommunications Group*



Ves said:


> I don't own MTU, and haven't really planned on buying any.  But this acquisition doesn't look all that great on paper.
> 
> They're essentially paying $183m for a company that earned a profit of $10.3m. If you can believe the synergies (at $5m a year) that's $15m added to the bottom line. You could argue that this increases their customer base and that they gain infrastructure. Perhaps they can drag some added hidden earnings out of Primus.
> 
> ...




Identifiable intangible asset. aka customer contract valuations created from change of control transactions.

You will have to go to the PTGI accounts to dig out the relevant information. Alternatively look at the cash numbers for a generalised picture.


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## Ves (22 April 2012)

*Re: MTU - M2 Telecommunications Group*



craft said:


> Identifiable intangible asset. aka customer contract valuations created from change of control transactions.



Thanks - I am not 100% sure that I follow.  But is this the reason for the difference between NPAT of 10.4m compared to FCF of $15.4m?

Therefore - they receive cash payment in advance of having to recognise revenue on the operating statement?


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## craft (22 April 2012)

*Re: MTU - M2 Telecommunications Group*



Ves said:


> Thanks - I am not 100% sure that I follow.  But is this the reason for the difference between NPAT of 10.4m compared to FCF of $15.4m?
> 
> Therefore - they receive cash payment in advance of having to recognise revenue on the operating statement?



Transaction accounting creates valuations for customer contracts which have to be amortised.
This is a non cash accounting expense only. You alluded to it when you mentioned the 4 Million amortisation in your first post for customer contracts already on M2’s books from previous purchases.

Primus has similar contracts already on their balance sheet which were created when PTGI emerged from bankruptcy. It’s existence in the Australian operations that M2 are buying is evident in the large difference between EBITDA and EBIT (larger than the Capex spend) and via the cash flow info. 

There is no segment breakup in the PTGI accounts for just Australia but they had $99.2 million of amortizable customer relationships in total and Aus represented about 35% of revenue..

The only research report I have seen so far for the combined M2 indicates an non-cash amortisation amount for 2013 of about 20million.


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## Ves (22 April 2012)

*Re: MTU - M2 Telecommunications Group*

I could be being a bit simple here...

But, as far as I understand, it works as follows. In normal circumstances a customer enters into a contract with the entity. The company is allowed to amortise this contract over the _estimated_ life span of this contract using the straight-line recognition method, which appears on the P & L as profit .

Another company (in this case MTU) takes over the first company. These contracts are then revalued, and the amortisation can be reset. Which in certain circumstances results in an a difference. This is the intangible asset that you have mentioned?


----------



## craft (22 April 2012)

*Re: MTU - M2 Telecommunications Group*



Ves said:


> I could be being a bit simple here...
> 
> But, as far as I understand, it works as follows. In normal circumstances a customer enters into a contract with the entity. The company is allowed to amortise this contract over the _estimated_ life span of this contract using the straight-line recognition method, which appears on the P & L as profit .
> 
> Another company (in this case MTU) takes over the first company. These contracts are then revalued, and the amortisation can be reset. Which in certain circumstances results in an a difference. This is the intangible asset that you have mentioned?




If there was no change of ownership transaction (or bankruptcy in PTGI’s case) these contracts/relationships in question would never be recognised on the balance sheet as an asset and hence not need to be expensed.  The business is the same but the accounting profit is different pre/post transaction – you need to normalise for it to get a true economic picture.


----------



## Muschu (24 April 2012)

*Re: MTU - M2 Telecommunications Group*

SP still getting hammered!  This is the record date for the entitlement offer as I understand it.


----------



## skc (24 April 2012)

*Re: MTU - M2 Telecommunications Group*



Muschu said:


> SP still getting hammered!  This is the record date for the entitlement offer as I understand it.




The ex-rights was 18 Apr. Record date shouldn't affect the share price much.

A decent intro article on various telcos. 



> M2 currently refers to their business model as “infrastructure light” as they have relied on network infrastructure of larger Telcos like Telstra to focus on small and medium businesses.  As such, they are not in a position to realise any significant cost savings via the new fibre optic network.  Although their past performance in terms of fundamentals has been solid, it remains to be seen what impact the NBN will have on their business.




http://www.thebull.com.au/articles/a/27684-7-telco-stocks-at-the-frontier-of-growth.html


----------



## Muschu (24 April 2012)

*Re: MTU - M2 Telecommunications Group*

Many thanks for the interesting article skc.
Regards
Rick


----------



## Kipp (27 April 2012)

*Re: MTU - M2 Telecommunications Group*



clinta44 said:


> Thats what I was trying to get at - The only way there is no dilution is if the acquisition is EPS accretive and in my entire life I’ve not seen many of those.
> 
> time will tell I suppose ...




Yeah, I read the co announcment and my little brain can't make sense of their figures, whcih claim that Primus is +8.6% EPS acquisitive.  Primus CY2011 NPAT of 10m, company pays $180m (18x NPAT).  And funds with 81m share placement, and $139m of Debt.  Surely, they are paying ~7% minimum for the debt - which would have to be ~$9 - 10m in interest per annum.  Plus all of the extra shares on issue.... 

Then comes the question of the "match made in heaven" (as said by Primus CEO).  That they operate in different areas, with a different customer base.  Ok, great in terms of opportunity - but not so great in terms of synergies I would have thought... 
But sorry, I shouldnt really be posting, as I am very light on for research on M2.  But the acquistion doesn't seem immediately cheap - but it might include some amazing strategic assets (like the data centres, and the cable networks) which are fair more valuable than I realise, and more than justify the $180m purchase price.  (As a shareholder, I would also want to see a -10 - 20% headcount on the primus side, but that is just me being a capitalist bastard


----------



## pavilion103 (1 June 2012)

*Re: MTU - M2 Telecommunications Group*

The chart looks strong. I was in a few days back. It seems that there is little supply left and has begun to move.


----------



## notting (1 June 2012)

*Re: MTU - M2 Telecommunications Group*

Looking strong today, yet has left a gap and is rubbing up against a bit of resistance after a capital raising.  Could find it a little hard to go further in the short term.


----------



## pavilion103 (1 June 2012)

*Re: MTU - M2 Telecommunications Group*



notting said:


> Looking strong today, yet has left a gap and is rubbing up against a bit of resistance after a capital raising.  Could find it a little hard to go further in the short term.




Yep. I'm trying to decide where to trail my stop with this one after a nice little run up. But do agree that it may encounter some resistance now.


----------



## robusta (2 June 2012)

*Re: MTU - M2 Telecommunications Group*



pavilion103 said:


> Yep. I'm trying to decide where to trail my stop with this one after a nice little run up. But do agree that it may encounter some resistance now.




Just made it into the ASX200 it will be interesting to see if the institutions and ETF's buying will move the price in this market.


----------



## craft (2 June 2012)

*Re: MTU - M2 Telecommunications Group*



robusta said:


> Just made it into the ASX200 it will be interesting to see if the institutions and ETF's buying will move the price in this market.




There was supposed interest by institutional investors in MTU prior to the Primus transaction.

MTU gave the Insto the cold shoulder by doing a rights issue instead of a placement. Meaning the Institutions would have to buy their way in on market. There has been no new institutions appear on the register since the rights issue, so MTU has probably received a bit of a cold shoulder in return. 

Inclusion in the ASX200 changes the dynamics again. MTU still appears to have a low institutional representation for what is now a ASX200 company.


----------



## pavilion103 (4 June 2012)

*Re: MTU - M2 Telecommunications Group*

Interesting price action today.


----------



## notting (4 June 2012)

*Re: MTU - M2 Telecommunications Group*



pavilion103 said:


> Interesting price action today.




I took profits on Friday and would have got back in with a partial position at 3.32 had it got there!  Would have gotten out again at the 3.50 level had I got it.
Just missed, pretty sure it will offer up again but this time may not bounce so quickly, so will probably just whatch.


----------



## robusta (2 July 2012)

*Re: MTU - M2 Telecommunications Group*

Interesting article on MTU in the SMH recently.

http://www.smh.com.au/business/m2-chief-rings-in-the-changes-20120629-217yc.html


----------



## robusta (12 July 2012)

*Re: MTU - M2 Telecommunications Group*



pavilion103 said:


> Interesting price action today.




Interesting today as well, maybe some broker woke up and realised dividend and EPS will be down this year while they bed down Iprimus?


----------



## craft (25 September 2012)

*Re: MTU - M2 Telecommunications Group*

Customer contract amortization caused by business acquisition accounting amounts to 5.1Million (FY12) and 12.4Million for (FY13)

Adjusting for this as is economically logical to do results in EPS of 29.8 (FY12) and 36.5 (mid point company forecast FY13)

At $3.50 that is a historical P/E of 11.7 and a forward P/E of 9.6. given the exceptional growth rates of this company to date  these superficial  numbers certainly don’t look expensive to me yet I hear many people declaring MTU as expensive? It would be interesting to know the foundation of the ‘expensive’ opinion.


----------



## Ves (25 September 2012)

*Re: MTU - M2 Telecommunications Group*

Back of the envelope I had ROIC increasing from about 28-30% in 2011 to around 35-40% in 2012.  That's without adjusting the numbers as above for 2012. I only spent a few minutes to get a ballpark figure so I would not rely on these figures for your own decision making.

The thing that I could never understand (and why I cannot give my opinion of value this company) is beause I do not understand the source of their competitive advantage or whether they are a growing firm, in a currently low-competition, low capital expenditure market that has yet to reach saturation. It seems to me that their returns on incremental capital will start to reduce eventually, but for the moment there is nothing to indicate that this is the case.

There is always something disturbing about companies that have negative tangible assets to this degree as well, especially when they were positive in the prior year. Balance sheet is a bit risky in that respect.  

I think it's a stock I need to have a much closer look at at some point.


edit: craft - the discussion we had about accounting goodwill & purchase adjustments on this and the last page makes more sense now after reading back over it.  It's amazing how things are put into context through completely unrelated research.


----------



## craft (10 December 2012)

*Re: MTU - M2 Telecommunications Group*



craft said:


> There was supposed interest by institutional investors in MTU prior to the Primus transaction.
> 
> MTU gave the Insto the cold shoulder by doing a rights issue instead of a placement. Meaning the Institutions would have to buy their way in on market. There has been no new institutions appear on the register since the rights issue, so MTU has probably received a bit of a cold shoulder in return.
> 
> Inclusion in the ASX200 changes the dynamics again. MTU still appears to have a low institutional representation for what is now a ASX200 company.





All time high for MTU on Friday – NAB still the only main stream institution to pop up on the register.  Interesting to see if a push higher here sees some scrambling.


----------



## robusta (10 December 2012)

*Re: MTU - M2 Telecommunications Group*



craft said:


> All time high for MTU on Friday – NAB still the only main stream institution to pop up on the register.  Interesting to see if a push higher here sees some scrambling.




Not a mainstream institution but I bet you noticed Hunter Hall hold a bit over 9% of this business. Probably not much liquidity if Perpetual and their mates decide they want to take a substantial position.


----------



## robusta (10 December 2012)

*Re: MTU - M2 Telecommunications Group*

Interesting video on MTU

http://www.youtube.com/watch?v=csk2Tb4rkhI&list=UUZJQzvKpphJJIVFq62xs8vw&index=9

Hopefully I don't get accused of ramping HHL but their youtube site is well worth a look for value investors.

Good video on Sirtex available on the same site.


----------



## craft (11 December 2012)

*Re: MTU - M2 Telecommunications Group*



robusta said:


> Interesting video on MTU
> 
> http://www.youtube.com/watch?v=csk2Tb4rkhI&list=UUZJQzvKpphJJIVFq62xs8vw&index=9
> 
> ...




I would love to have been a fly on the wall when risk limits to the hunter hall business were being thrashed out. No doubt this re-focusing of what constitutes risk to a funds management business is a result of David Deverall coming on board.

Despite Peter owning nearly half the business he seems to have come around but you can just about see him grimacing when he talks about what he sees as selling down Sirtex for 10 cents in the dollar.

Looks like MTU is now getting the same risk management treatment.


----------



## Country Lad (27 January 2013)

*Re: MTU - M2 Telecommunications Group*

I expect this to continue up for a little while after the recent break.

Cheers
Country Lad


----------



## robusta (25 February 2013)

*Re: MTU - M2 Telecommunications Group*

Results out today

Revenue up 65%, NPAT up 47%, EPS up only 16%, dividend up 11%, net debt down from 125.3 m to 116.2 m. Happy days.

Here is the presentation on BRR.
http://www.brrmedia.com/event/110005/geoff-horth-ceo


----------



## Muschu (25 February 2013)

*Re: MTU - M2 Telecommunications Group*



robusta said:


> Results out today
> 
> Revenue up 65%, NPAT up 47%, EPS up only 16%, dividend up 11%, net debt down from 125.3 m to 116.2 m. Happy days.
> 
> ...




Yes certainly one of my best performers in a SMSF.... Seems very strong indeed.


----------



## craft (25 February 2013)

*Re: MTU - M2 Telecommunications Group*



robusta said:


> Results out today
> 
> Revenue up 65%, NPAT up 47%, EPS up only 16%, dividend up 11%, net debt down from 125.3 m to 116.2 m. Happy days.
> 
> ...




Adjusted EPS is an important number for MTU as it most closely represents the discretionary cash earnings from the business.  They are up 32% to 20.2 cents. 

I’m quite comfortable that they will hit 100Million adjusted EBIT for the full year.

EV/EBIT (adj) = 8.5
P/E (adj) = approx 12.

Company is certainly not without risks but has always been fairly cheap (considering the growth) and is still reasonably so – that certainly makes it easier to hold especially as you watch the company strengthen and grow with every report delivered. 

This company did one thing very well that is often stuffed up with young growth companies. It transitioned CEO from founding entrepreneur to quality business manager and now has best of both worlds

Revenue growth is probably the weakest link in this report all things considered – Efficiency and cost control is pretty impressive considering the acquisition they had to bed down.


----------



## Boggo (26 February 2013)

*Re: MTU - M2 Telecommunications Group*



Muschu said:


> Yes certainly one of my best performers in a SMSF.... Seems very strong indeed.




One of my SMSF better ones too.




craft said:


> Adjusted EPS is an important number for MTU as it most closely represents the discretionary cash earnings from the business.  They are up 32% to 20.2 cents.
> 
> I’m quite comfortable that they will hit 100Million adjusted EBIT for the full year.
> 
> ...




The charts (tea leaves) have had an inkling that things have been going well for some time now 

(click to expand)


----------



## craft (18 March 2013)

*Re: MTU - M2 Telecommunications Group*

MTU up 4.5% today on the back of the DODO/EFT acquisition.  

XAO was down 2%.

Today was also ex div date for a 10cent fully franked div. 

All up a pretty robust initial reaction to the announcement.

Company is claiming 20% EPS accretive for 2014.


----------



## Boggo (18 March 2013)

*Re: MTU - M2 Telecommunications Group*



craft said:


> MTU up 4.5% today on the back of the DODO/EFT acquisition.
> 
> XAO was down 2%.
> 
> ...




Luv it


----------



## Fifty101 (22 March 2013)

*Re: MTU - M2 Telecommunications Group*

I have held this stock in the past when it was providing a yield of around 6.6%. Sold it a while back for a nice profit. Definitely has some good results on an ongoing basis. With a current yeild of under 4% and a current liabilities level _above_ current assets, it does not suit my criterea at the moment. At a current price of $4.84 it doesn't seem overly cheap either. As a quality company it will definitely be staying on my watchlist though.


----------



## robusta (23 March 2013)

*Re: MTU - M2 Telecommunications Group*

Normally something with this level of debt would make me run a mile. The revenues from this business do seem to be consistent and perhaps even growing. I think I will hold for a while, collect the dividends and see what happens next.


----------



## tinhat (23 March 2013)

*Re: MTU - M2 Telecommunications Group*

I sold my MTU a couple of years ago when I did a portfolio restructure. One of the good stocks I should not have let go. I've put it back on my watch list. I was nervous of the iPrimus acquisition as iPrimus was experiencing a high churn rate at the time MTU took them over.

Telecoms is an interesting industry, particularly with the coming of the NBN. To what degree are telecoms companies going to be resellers of a commodity (the NBN, Optus mobile)? To what degree are they going to be able to value add, innovate and service niches? Its am industry where although demand may continue to grow for years to come, margins may continue to fall as well.

Another challenge is that up until now MTU have been growing through acquisitions (low hanging fruit) - something they have been very deft at in terms of making acquisitions that are highly earnings accretive. At some stage they are going to have to concentrate more on organic growth of market share - something harder to do. I would suggest that they are going to have to invest into branding to achieve this. I don't consider any of their brands to be very strong - particularly in the retail market.

I think the current share prices represents reasonable value. It's not overly cheap, but looking at forward earnings forecasts you can expect a growing dividend and the price represents a reasonable yield plus growth potential.


----------



## robusta (23 March 2013)

*Re: MTU - M2 Telecommunications Group*



tinhat said:


> Telecoms is an interesting industry, particularly with the coming of the NBN. To what degree are telecoms companies going to be resellers of a commodity (the NBN, Optus mobile)? To what degree are they going to be able to value add, innovate and service niches? Its am industry where although demand may continue to grow for years to come, margins may continue to fall as well.
> 
> Another challenge is that up until now MTU have been growing through acquisitions (low hanging fruit) - something they have been very deft at in terms of making acquisitions that are highly earnings accretive. At some stage they are going to have to concentrate more on organic growth of market share - something harder to do. I would suggest that they are going to have to invest into branding to achieve this. I don't consider any of their brands to be very strong - particularly in the retail market.




The majority of revenue from these internet service providers is fairly 'sticky'. Many people set up their plan and unless there is a compelling reason to change they are still paying the same company every month ten years later. You are right this does make it difficult to grow organically however. 
It will be interesting to see how things go with the supposedly level playing field from the NBN. Telstra will probably have some sort of advantage being the incumbent and also by bundling internet plans with their superior mobile coverage. Optus, IINET and TPG are not going to sit by idly either they will be looking for more growth.

Anyway should be interesting to watch how MTU go from here.


----------



## chops_a_must (10 May 2013)

*Re: MTU - M2 Telecommunications Group*

A selloff top on volume today.

Things don't go straight up forever, but it has been a nice trade.


----------



## Paccioli (14 May 2013)

*Re: MTU - M2 Telecommunications Group*



robusta said:


> Optus, IINET and TPG are not going to sit by idly either they will be looking for more growth.
> 
> Anyway should be interesting to watch how MTU go from here.



Industry consolidation remains open also. I offloaded 20% of my MTU just today. I am not a trader as such but when something runs to the top of my portfolio and stretches the boundaries, I rebalance. MTU was among a few, MMS being another while we are among the Ms.


----------



## Out Too Soon (16 May 2013)

*Re: MTU - M2 Telecommunications Group*

They say "the trend is your friend", in fact I'm reading a book that spends the first 3+ chapters saying that, briefly mentions Elliott Wave theory half way through & that's where I'm up to. If there's no pearls of wisdom in the last half then I'll be reviewing "Mastering Trade Selection & Management" as a 1 star out of 5 waste of my time & money. 
  Back on the subject at hand



PS If I'd bought at "$4.60 then "the trend is (really truly my) your friend"


----------



## Muschu (16 May 2013)

*Re: MTU - M2 Telecommunications Group*

A wonderful performer which I got into (without skill) at $3.04. Won't mention the losers ......


----------



## Country Lad (22 May 2013)

*Re: MTU - M2 Telecommunications Group*

I have outlined my trade in this one in the  P&F thread  but thought I should post the charts here as well.  

The second chart changed the box size from 4 to 6 in line with the increase in share price.

Cheers
Country Lad


----------



## Country Lad (23 May 2013)

*Re: MTU - M2 Telecommunications Group*

Market sentiment changed to strongly negative, sell 3.72 times buy after 30 minutes and algorithm showing continuing sell bias.  Sold at average $5.94.

Cheers
Country Lad


----------



## Out Too Soon (23 May 2013)

*Re: MTU - M2 Telecommunications Group*

Sorry Country Lad, I must have jinxed it, also IIN & TPM (TPG) took a complete pounding


----------



## Out Too Soon (23 May 2013)

*Re: MTU - M2 Telecommunications Group*

Open 6.18, High 6.18, Low 5.19    Don't see that very often, wish I had a trigger to buy at 5.19- foresight is/would be a wonderful thing


----------



## skc (23 May 2013)

*Re: MTU - M2 Telecommunications Group*



Out Too Soon said:


> Sorry Country Lad, I must have jinxed it, also IIN & TPM (TPG) took a complete pounding




And AMM down 15% after director and major shareholder selling. 

IIN was dongraded by Goldmans and dropped off its high conviction list and may be that not said something about the sector in general.

But this is one heck of a sell off in a sector that's been rising none-stop for a good 12 months.


----------



## Country Lad (23 May 2013)

*Re: MTU - M2 Telecommunications Group*

This exercise demonstrates the need to adhere to stops.  The trade gave me an overall profit of a bit over 44%.  Had I ignored the stop, it would now stand at a bit under 32%.  Yes, it might recover but I can always buy it back but more likely the funds will be in another positive trade.

Cheers
Country Lad


----------



## craft (23 May 2013)

*Re: MTU - M2 Telecommunications Group*



skc said:


> But this is one heck of a sell off in a sector that's been rising none-stop for a good 12 months.




Exit just not big enough for a crowd. 

I know in the case of MTU, as well as the trend followers wanting out you can probably add EFT holders who took script because it was rising and the big $2.66 rights issue has just turned over 12 months for CGT discount.


----------



## skc (23 May 2013)

*Re: MTU - M2 Telecommunications Group*



craft said:


> Exit just not big enough for a crowd.
> 
> I know in the case of MTU, as well as the trend followers wanting out you can probably add EFT holders who took script because it was rising and the big $2.66 rights issue has just turned over 12 months for CGT discount.




I doubt EFT holders have anything to do with today's move... it'd be some off shore fund taking profit out of the sector...

These names are really not that liquid at the best of times and a rushed exit created a fair bit of carnage. Some domestic funds will step up and there's a good chance that these names will have a bounce tomorrow (many are well offf the lows already).


----------



## WaltJnr (24 May 2013)

*Re: MTU - M2 Telecommunications Group*

Crazy action yesterday but the run it was on wasn't sustainable. iiNet got downgraded by Goldman Sachs apparently so that might have had an effect across the board also?


----------



## skc (24 May 2013)

*Re: MTU - M2 Telecommunications Group*



skc said:


> Some domestic funds will step up and there's a good chance that these names will have a bounce tomorrow (many are well offf the lows already).




Or NOT.

Still very broadbased selling today and particular carnage for this sector.


----------



## craft (24 May 2013)

*Re: MTU - M2 Telecommunications Group*



skc said:


> carnage



*??*

Depends on your perspective,





Can't have businesses like MTU to easy to hold onto or everybody would be rich!


----------



## Ves (24 May 2013)

*Re: MTU - M2 Telecommunications Group*



craft said:


> *??*
> 
> Depends on your *perspective*,



A very powerful tool to have in your kit.


----------



## skc (24 May 2013)

*Re: MTU - M2 Telecommunications Group*



craft said:


> *??*
> 
> Depends on your perspective,
> 
> Can't have businesses like MTU to easy to hold onto or everybody would be rich!




Lol. My perspective is short term and my aim is always smooth equity curve and minimal drawdown.

The market is often irrational and I am neck deep in the market. I guess that makes me irrational too!


----------



## Ves (25 May 2013)

*Re: MTU - M2 Telecommunications Group*



skc said:


> I guess that makes me irrational too!



You're also very good at what you do.  It probably makes you more rational than you seem.


----------



## craft (25 May 2013)

*Re: MTU - M2 Telecommunications Group*



skc said:


> Lol. My perspective is short term and my aim is always smooth equity curve and minimal drawdown.
> 
> The market is often irrational and I am neck deep in the market. I guess that makes me irrational too!






Ves said:


> You're also very good at what you do.  It probably makes you *more rational than you seem*.




Is that a complement followed by a back hander?  I'm sure skc realises no back hander intended, but it did give me a laugh.

The one thing that investing in businesses for the long term doesn’t give you is a smooth equity curve and there are certainly rational reasons for having a smooth equity curve as a priority, particularly at certain points in your life, at other times you have the freedom to pick the Merry Go Round or the Roller Coaster.


----------



## Ves (25 May 2013)

*Re: MTU - M2 Telecommunications Group*



craft said:


> Is that a complement followed by a back hander?  I'm sure skc realises no back hander intended, but it did give me a laugh.
> 
> The one thing that investing in businesses for the long term doesn’t give you is a smooth equity curve and there are certainly rational reasons for having a smooth equity curve as a priority, particularly at certain points in your life, at other times you have the freedom to pick the Merry Go Round or the Roller Coaster.




It was a genuine complement.   I didnt word the second part very well! Also agree with the equity curve analogies.


----------



## robusta (3 July 2013)

*Re: MTU - M2 Telecommunications Group*

MTU to take around 12% of Inabox in the IPO, could be a interesting business to watch.

http://www.asx.com.au/asxpdf/20130703/pdf/42gv2zsm9wzwf5.pdf


----------



## Boggo (3 July 2013)

*Re: MTU - M2 Telecommunications Group*

Sold out at $6 on the 17th May, bought some back yesterday below $5.80 and had an order in for more at the close today but didn't get any.
Willing to top back up to original quantity if it keeps moving.

(click to expand)


----------



## small fish (17 July 2013)

*Re: MTU - M2 Telecommunications Group*

does anyone know why mtu has dropped 7% in the past couple of days. I know it was coming off a near high but without any major announcements it seemks like a massive plunge.


----------



## Boggo (17 July 2013)

*Re: MTU - M2 Telecommunications Group*



small fish said:


> does anyone know why mtu has dropped 7% in the past couple of days. I know it was coming off a near high but without any major announcements it seemks like a massive plunge.




Market didn't seem to like their idea of investing $2 mill in an IPO, I got stopped out at 5.87.


----------



## skc (17 July 2013)

*Re: MTU - M2 Telecommunications Group*



small fish said:


> does anyone know why mtu has dropped 7% in the past couple of days. I know it was coming off a near high but without any major announcements it seemks like a massive plunge.




JP Morgan released a piece of research on 11 July on the NBN's impact to second tier telcos' margins and downgraded TPM and IIN on the back of that. Both of these stocks have been weak since and I think MTU is being pulled along (rightly or wrongly).


----------



## craft (5 August 2013)

*Re: MTU - M2 Telecommunications Group*

New all time high and close for MTU.   Interesting in light of the carnage, plunge and whipsawing posts of the last page or so.  

Obviously there’s now anticipation of a good result – which if it occurs would be quite impressive considering the integration tasks they have on their plate.


----------



## McCoy Pauley (6 August 2013)

*Re: MTU - M2 Telecommunications Group*



craft said:


> New all time high and close for MTU.   Interesting in light of the carnage, plunge and whipsawing posts of the last page or so.
> 
> Obviously there’s now anticipation of a good result – which if it occurs would be quite impressive considering the integration tasks they have on their plate.




Been watching MTU but haven't had the cash to jump in.  There's now a risk that MTU has been "priced for perfection" and if the results don't quite live up to expectations, a lot of holders will jump out of the stock.  Just about all the public coverage of MTU suggests that MTU should have a bonanza result to announce and nobody seems to be talking about the possibility that something has gone awry in the last 12 months.  I'll probably keep my powder dry and look at the latest results before making a decision, even if I have to end up paying more because they do hit the high notes.


----------



## piggybank (14 August 2013)

*Re: MTU - M2 Telecommunications Group*

Broke through recent resistance of $6.60, to close at an ATH (All Time High) of $6.75.


----------



## robusta (23 August 2013)

*Re: MTU - M2 Telecommunications Group*



craft said:


> New all time high and close for MTU.   Interesting in light of the carnage, plunge and whipsawing posts of the last page or so.
> 
> Obviously there’s now anticipation of a good result – which if it occurs would be quite impressive considering the integration tasks they have on their plate.




This business is giving me a lot to think about, I took some profits at $6.12 a while ago now the price has zoomed to over $7.00 it should ve very interesting reading the results next week. I probably should think about selling but where else to allocate the capital into something that is growing earnings?

Let your profits run.

You can't make a loss taking profits.

Anyway not a bad problem to have.


----------



## Ves (23 August 2013)

*Re: MTU - M2 Telecommunications Group*

Why take profits if you are a long-term fundamental investor and the business has not give you an exit criteria?   You are just handing the interest-free loan back to the government earlier than you otherwise would have.   As much as 23% of your profits could be handed back (assuming holding period over one year).

Different story if you are forced to sell,   then you just pay the tax.


----------



## Muschu (26 August 2013)

*Re: MTU - M2 Telecommunications Group*

Really interesting and I must be missing something.  Maybe the record results announced today were already factored in... MTU hits $7.27 and then slides to around $6.81 at the moment.
Beyond my comprehension like most of the market.....


----------



## clinta44 (26 August 2013)

*Re: MTU - M2 Telecommunications Group*

Speaking on long term fundamentals for MTU... the biggest concern I have with this company is its acquisitions. While most of the acquisitions make sense, the way they purchase these companies doesn't make too much sense (IMO). 

They have almost added 100 million new shares since FY2008.

If they limited the issuing of shares EPS could be north of 50c now... 

I have a funny feeling the board feels that the share price is overvalued and are issuing shares because its cheaper than using existing cash flow and/or existing debt facilities. But in saying that, if my opinion is correct, at the end of the day the board is still stiffing the MTU shareholders by issuing shares at over inflated prices. 

anyone else have opinions on the acquisition strategies?


----------



## Boggo (26 August 2013)

*Re: MTU - M2 Telecommunications Group*



Muschu said:


> Really interesting and I must be missing something.  Maybe the record results announced today were already factored in... MTU hits $7.27 and then slides to around $6.81 at the moment.
> Beyond my comprehension like most of the market.....




In the majority of cases the upcoming results are evident in the price action way before the masses are informed.


----------



## Ves (26 August 2013)

*Re: MTU - M2 Telecommunications Group*



clinta44 said:


> I have a funny feeling the *board feels that the share price is overvalued *and are issuing shares because its *cheaper than using existing cash flow and/or existing debt facilities.* But in saying that, if my opinion is correct, at the end of the day the *board is still stiffing the MTU shareholders by issuing shares at over inflated prices. *



I admit,  I am having a bit of trouble understanding the parts that I have bolded. The last of the bolds seems to be contradicting the first two.  Can you please try to explain it again or rephrase it, if it isn't much trouble?

Without looking putting forward an opinion on MTU's valuation, my opinion is that:

If a company receives value in excess of the _intrinsic value_ of each share that it issues then it is creating long-term value for shareholders.   

How could this be a bad thing?


----------



## sydboy007 (26 August 2013)

*Re: MTU - M2 Telecommunications Group*



clinta44 said:


> Speaking on long term fundamentals for MTU... the biggest concern I have with this company is its acquisitions. While most of the acquisitions make sense, the way they purchase these companies doesn't make too much sense (IMO).
> 
> They have almost added 100 million new shares since FY2008.
> 
> ...




I'm interested to see how they integrate the recent issues.

M2 has been a Telstra reseller for most of it's life.

The purchase of Primus last year gave it a small DSLAM network and a fairly decent fiber network within and between the capital citiies.  Dodo / Eftel are mainly Telstra resellers.

IINet say they make over twice the revenue from an on-net to off-net customer, so IF M2 can migrate a fair number of Dodo / Eftel customers over to the Primus DSLAMs there could be a decent yield improvement.

One thing they do have now is a multi level branding.  Dodo for the bottom of the market, Primus at the mid range for those who'd like to speak to a Aussie support staff.

it will be interesting to see how well they handle the integration of the companies, and what synergies are available to prop up the share price.  14+ months ago M2 was a decent yield play, not not so much.  It's gotten quite expensive in my mind, but then IInet and TPG are too, along with the big T.


----------



## Ves (26 August 2013)

*Re: MTU - M2 Telecommunications Group*

With the benefits of only a few scribbles and a calculator,   it would appear that Return on Invested Capital (ROIC) is still growing.   Lots of accounting (book) entries to keep in mind from the acquisitions that affect or reduce the accounting profit compared to the real cash profit reality.

It would also appear that the financing of Net Tangible Assets is becoming more and more internally financed over time....  I will leave it up to other posters to make their mind up on the meaning of this circumstance,  but I find it very interesting indeed.


----------



## skc (26 August 2013)

*Re: MTU - M2 Telecommunications Group*



Boggo said:


> In the majority of cases the upcoming results are evident in the price action way before the masses are informed.




Boggo, is this statement backed by ancedotes or through your own research with supporting statistics? 

We've all heard this before but there's no doubt that there are earning surprises all the time that create large moves on reporting day. If one was to take these large moves into account I am unsure whether the result is always "priced in" by preceeding action.

P.S. May not be  the right thread to discuss this in detail, so if you are sharing your research or view, a new thread might be a better place.

Thanks


----------



## craft (26 August 2013)

*Re: MTU - M2 Telecommunications Group*



clinta44 said:


> anyone else have opinions on the acquisition strategies?




Clinta

As Ves pointed out your post is contradictory on issuing stocks above fair value.
The other thing to be mindful of is who the shares were issued to, you need to be more concerned about exclusive issuing to vendors, executive options  or placements to institutions etc  then rights issues and DRP’s.

MTU use of shares is more conservative then the top line  100M would suggest.

My personal view is that the acquisition strategy has added a lot of value and amazingly hasn’t blown things up.

Two reasons’ why it has worked for them - Volume has given them purchasing power and they purchased cheap.  The reason they could purchase cheap is to do with relative churn rate abilities – understand the churn and you will understand the power in their acquisition story. 

Having said the acquisition strategy has added value I would also like it to take a rest here (debt financing is pretty fully utilised) and the focus to turn for a while totally towards extracting the organic growth and efficiencies available within existing operations.


----------



## craft (26 August 2013)

*Re: MTU - M2 Telecommunications Group*



skc said:


> Boggo, is this statement backed by ancedotes or through your own research with supporting statistics?
> 
> We've all heard this before but there's no doubt that there are earning surprises all the time that create large moves on reporting day. If one was to take these large moves into account I am unsure whether the result is always "priced in" by preceeding action.
> 
> ...




LOL 

Good question - I spent ages trying to write a post in response to Bogo's because I just don't get how the masses of uninformed actually impact a share price but in the end deleted it.

The market price is driven by the transaction power of the engaged - before the announcement and after.

It seems the argument is that ‘masses’ (number of people? Transaction power?)  don’t impact on the price with their lack of information prior to the announcement but they do impact on the price post announcement with the corrected information.   It seems a contradictory argument.


----------



## Boggo (26 August 2013)

*Re: MTU - M2 Telecommunications Group*



skc said:


> Boggo, is this statement backed by ancedotes or through your own research with supporting statistics?
> 
> We've all heard this before but there's no doubt that there are earning surprises all the time that create large moves on reporting day. If one was to take these large moves into account I am unsure whether the result is always "priced in" by preceeding action.
> 
> ...




I am in Sydney until Friday on the iPad so I don't have access to accurate charting etc but have a look at recent price action of MTU for starters.

Will follow up on the weekend time permitting.


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## Knobby22 (26 August 2013)

*Re: MTU - M2 Telecommunications Group*

Why are the transaction costs so large? EPS up only 11% because of them, though they won't figure for the next report. Hopefully they can keep the businesses running as profitably. There is always problems in these mergers.


----------



## robusta (26 August 2013)

*Re: MTU - M2 Telecommunications Group*



craft said:


> Having said the acquisition strategy has added value I would also like it to take a rest here (debt financing is pretty fully utilised) and the focus to turn for a while totally towards extracting the organic growth and efficiencies available within existing operations.




This is the major issue to me, there does not seem to be anymore obvious targets out there at the moment and the last thing we need to see is a bidding war between IINET and MTU. Mr Vaughan has done well so far.


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## Boggo (1 September 2013)

*Re: MTU - M2 Telecommunications Group*



Boggo said:


> In the majority of cases the upcoming results are evident in the price action way before the masses are informed.






skc said:


> Boggo, is this statement backed by ancedotes or through your own research with supporting statistics?
> 
> We've all heard this before but there's no doubt that there are earning surprises all the time that create large moves on reporting day. If one was to take these large moves into account I am unsure whether the result is always "priced in" by preceeding action.




Just a brief reply with a couple of chart examples. Apart from MTU you could also look at the days leading up to the reports from AMP, FLT etc, actually many examples exist where you can get a heads up if you are monitoring your holdings or a watchlist closely in the lead up to reporting day.
Two examples (I went short on CCL at the turn). New thread may be needed if this warrants further discussion.


----------



## skc (4 September 2013)

*Re: MTU - M2 Telecommunications Group*



Boggo said:


> Just a brief reply with a couple of chart examples. Apart from MTU you could also look at the days leading up to the reports from AMP, FLT etc, actually many examples exist where you can get a heads up if you are monitoring your holdings or a watchlist closely in the lead up to reporting day.
> Two examples (I went short on CCL at the turn). New thread may be needed if this warrants further discussion.




Hi Boggo, I started a new thread on this so as not to crowd the MTU guys.

https://www.aussiestockforums.com/forums/showthread.php?t=27348&p=792397#post792397


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## VSntchr (24 February 2014)

I thought the result was pretty good.

This offered a decent buying point for a few weeks just below $6. 
It is a bit cheaper by my val. metrics than some of its peers - but it has a lot of work to do over the next couple of periods to integrate some of the acquisitions. This result to me looks like they will do pretty well over the next few reports if they manage to integrate well as they have in the past....

I got a few when it dipped below $6, but only a small position and didn't feel it was cheap enough to get set.


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## skc (24 February 2014)

VSntchr said:


> I thought the result was pretty good.
> 
> This offered a decent buying point for a few weeks just below $6.
> It is a bit cheaper by my val. metrics than some of its peers - but it has a lot of work to do over the next couple of periods to integrate some of the acquisitions. This result to me looks like they will do pretty well over the next few reports if they manage to integrate well as they have in the past....
> ...




The report looks a little bit weaker than some of the analyst forecasts I've seen.

E.g. Goldman had EBITDA @ $81.2m, NPAT @ $32.3m and dividend at 13c. 

The reported figures were $75.8m, $30.9m and 11.5c.

So a slight miss at the NPAT line and pretty meaningful miss at the EBITDA line. I had my finger on a short on open this morning but was surprised by the strength. Now that it's dipped below into the red I've put the short on to see if hte weakness continues in the afternoon.
The full year guidance is unchanged by MTU.


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## VSntchr (24 February 2014)

skc said:


> Now that it's dipped below into the red I've put the short on to see if hte weakness continues in the afternoon.
> The full year guidance is unchanged by MTU.




I hope your short goes well, I'd like some for the portfolio if it can get to below ~$5.50 levels...


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## skc (24 February 2014)

VSntchr said:


> I hope your short goes well, I'd like some for the portfolio if it can get to below ~$5.50 levels...




Haha... sorry can't help you there. I am holding at most 'till tomorrow and just looking for 15-20c range. You will have to ask someone else to whack it for you.


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## craft (25 February 2014)

skc said:


> The report looks a little bit weaker than some of the analyst forecasts I've seen.




Reasonable result I thought (thought = interpretation via a biased perspective)

M2 was basically created as a roll-up business model and I posted against such models in both the GEM and GXL threads.  So what makes M2 different? They generally bought cheaply, the businesses were cheap because they had high churn in the customer retention, M2  then reduces the churn making what they bought much more valuable then what they paid for it. There are also true synergies of scale in purchasing power for wholesale Telco services they need to purchase.

To me the organic growth especially in NBN was pleasing.  My theory was that having a established low cost structure and mentality would give them an advantage at reselling NBN, so far that seems to be translating.

The electricity offer is also quite exciting. If people are happy saving money through M2 on their telephone bill it shouldn't be hard to get them to sign up for another utility as well and the early signs are encouraging. Unique offering in the market at the moment.


Business combination accounting seems to muddy the waters on M2’s number for a lot of people. Looking through that to economic returns M2 has never seemed that expensive to me and it still doesn’t, which makes it much easier for me to hang onto.

Iprimus is an anomaly to the rest of the M2 business as it introduced a fair bit more infrastructure and understanding the effects is still early days, not assisted by lumping of so much into ‘other expenses’ (which is also muddied with new costs from Eftel and Dodo etc)  P&L driver analysis is currently difficult especially at the half year because there is no further explanation via notes and whilst Facilities and Mtc have now been split out its not easy to do a sequential (past 6 months) comparison .  Given this I’m not too surprised that there has been a bit of flightiness around the EBITDA number.  I have been digging and am comfortable so not a major concern for me.

Better sign up for the DRP again and then back to sleep until more news. (observation – price often dips leading into the DRP pricing period)


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## Muschu (27 February 2014)

I'm no technical expert but what are the implications of MTU going down on increasing volume [please]?


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## Ves (27 February 2014)

Craft,   do you know if the reports include enough information for an investor to be able to calculate the churn rate on their customer base?   I had a quick look and couldn't see much detail in this respect.

It's obviously an important figure for this kind of business.


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## Ves (3 March 2014)

Looking at their forecasts for full year 2014  I'm arriving at ball park EBIT of around $140m post-non cash amortisation from customer contracts (given as $26m).

EBIT last year was $76.7m before adjustments to contract amortisation.     $76.7m * 1.48 + $26m = $139.5m  (representing a 48% increase in underlying EBIT).

Does anyone have any agree or have criticisms of these calculations?


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## craft (3 March 2014)

Ves said:


> Craft,   do you know if the reports include enough information for an investor to be able to calculate the churn rate on their customer base?   I had a quick look and couldn't see much detail in this respect.
> 
> It's obviously an important figure for this kind of business.




Sometimes you get something specific from presentations or more likely from the questions following.

Observing efficiency ratio's over a period of many halves will give you a broad insight - I'm sure you can work out some relevant ones.


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## craft (3 March 2014)

Ves said:


> Looking at their forecasts for full year 2014  I'm arriving at ball park EBIT of around $140m post-non cash amortisation from customer contracts (given as $26m).
> 
> EBIT last year was $76.7m before adjustments to contract amortisation.     $76.7m * 1.48 + $26m = $139.5m  (representing a 48% increase in underlying EBIT).
> 
> Does anyone have any agree or have criticisms of these calculations?




Nope

Some of the headline increase is because acquisition costs were expensed last year which supressed that result. There is also some dilution form shares issued as you move to the per share figures.

Bottom line the underlying (adjusted for customer contracts) EPS is forecast by the company to grow by 39%. Normalising last years result for traction costs I get a adjusted EPS growth figure of around 18%.


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## Ves (3 March 2014)

craft said:


> Nope
> 
> Some of the headline increase is because acquisition costs were expensed last year which supressed that result. There is also some dilution form shares issued as you move to the per share figures.
> 
> Bottom line the underlying (adjusted for customer contracts) EPS is forecast by the company to grow by 39%. Normalising last years result for traction costs I get a adjusted EPS growth figure of around 18%.



Do you mean the $7m  of expenses they're got tucked away in other expenses on note 6(e) of the annual report?  

I hadn't taken them into consideration.

So....  underlying 2013 NPAT = $43.78m+$14.6m (add back amortisation after tax)+$7m (acquisition costs as above ) = $65.38m

Underlying EPS =   $65.38m /  163.059m shares =  $0.401

Forecast underlying 2014 EPS (low-end) = $0.48

Underlying increase =  (0.48-0.401)/0.401 = 19.7%

Close enough.   I can also see why the market _could_ be a bit confused about this business.

PS:  I'm assuming that the acquisition costs included in the P/L had no tax effect....


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## craft (3 March 2014)

Interesting paragraph in Buffett's latest letter. It's an important point for MTU as they now are amortising 26Million of customer contracts p.a Does this sound familiar VES?



> I won’t explain all of the adjustments – some are tiny and arcane – but serious investors should understand
> the disparate nature of intangible assets: Some truly deplete over time while others in no way lose value. With software, for example, amortization charges are very real expenses. Charges against other intangibles such as the amortization of customer relationships, however, arise through purchase-accounting rules and are clearly not real costs. GAAP accounting draws no distinction between the two types of charges. Both, that is, are recorded as expenses when earnings are calculated – even though from an investor’s viewpoint they could not be more different.


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## Ves (3 March 2014)

craft said:


> Interesting paragraph in Buffett's latest letter. It's an important point for MTU as they now are amortising 26Million of customer contracts p.a Does this sound familiar VES?



Remember it fondly...  You should re-read some of my earlier posts in this thread (I know there's lots more in other threads too). It obviously took me a while to get my head around the concept. 

Buffett mentions it a lot.... has been for decades,  so it's obviously important if he hasn't changed his mind. 

What interests me about MTU (other than it's a highly cash generative, capital light, compounding machine) is their apparent ability to maintain really low churn rates as a reseller.  This will be a very handy asset as the NBN (in whatever form it takes) ramps up over the next five or ten years,  as other players have to rebrand as resellers due to the centralisation of ownership of the infrastructure.  If there is a larger shift from infrastructure players to a higher focus on reselling and marketing,  those with the lowest cost structures and people capability will be the biggest benefactors.  I also see that management has been astutely diversifying their revenue streams (electricity is the newest) whilst keeping to their core advantages and competencies.

I don't hold yet.... but it looks interesting at the moment.


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## Ves (7 March 2014)

Further to my previous post,  this article _may_ be of interest and probably says it better and expands upon some of the concepts I briefly touched upon:

http://delimiter.com.au/2012/06/21/nbn-competition-will-rest-almost-solely-on-price/


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## goccipgp (8 March 2014)

Looks like the newly recalculated support and resistance is 5.8 & 6.498. Long term  looks good.


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## Ves (15 April 2014)

The price action has been fairly gloomy since the half-year report. Looks like IIN and TPM have been similar.

I've opened a position as of this morning and would like to build over the next few months if the price is right.


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## VSntchr (15 April 2014)

Ves said:


> The price action has been fairly gloomy since the half-year report. Looks like IIN and TPM have been similar.
> 
> I've opened a position as of this morning and would like to build over the next few months if the price is right.




Yeah, another connection I am seeing is that the news of the NBN taking its plan to a more "aggressive" level has been correlating with weakness in some of these telco stocks..
I think it was you that made a post on here about the playing field being levelled by the NBN, so perhaps some selling is coming through the increased awareness of the NBN drawing closer.

Interestingly though, it is MTU that is being the hardest hit lately - with IIN holding up perhaps due to persistent TPG takeover rumours, and TPG holding up with the help of a pretty good HY result and the prospect of competing more effectively with the NBN by offering the fibre-to-the-basement technology allowing them to access whole apartment blocks. However, I thought that with the NBN CO stating how much of a threat this is to them, that it remains a bigger risk for TPG investors as it seems like something that the government will be doing anything they can to take it away.


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## Ves (15 April 2014)

Thanks VS

I still believe that the "reseller" nature of the planned NBN will mean that companies will only be able to compete on price and how well they can build customer lists (marketing) and then maintain them (low churn).  To do all of those things you need a low cost base.

MTU has been very good at the reselling caper historically, hence the perceived opportunity to increase market share.


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## robusta (12 July 2014)

Looking to buy Lumo
http://www.smh.com.au/business/m2-eyes-300m-deal-for-lumo-group-20140623-3amw4.html

Hopefully there will be opportunities to bundle services and create more 'sticky' customers.


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## IFocus (29 August 2014)

Usually troll around following the "usual suspects" discussing fundamentals to see if there is any technical correlation. MTU fitted the bill nicely so looked for a break out entry at $6.02.

My super account is a beneficiary as a result thanks gents appreciate your input to the forum keep up the good work.

Even if the how process is totally random IMHO............will be toasting you all with my finest cask of red wine tonight cheers


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## robusta (30 August 2014)

IFocus said:


> Usually troll around following the "usual suspects" discussing fundamentals to see if there is any technical correlation. MTU fitted the bill nicely so looked for a break out entry at $6.02.
> 
> My super account is a beneficiary as a result thanks gents appreciate your input to the forum keep up the good work.
> 
> Even if the how process is totally random IMHO............will be toasting you all with my finest cask of red wine tonight cheers




Good work IFocus, glad to see you got on board this solid business. While I don't fully understand your rationale, there are lots of ways to skin a cat...


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## piggybank (13 April 2015)

Melbourne-based telco M2 Group is set to acquire New Zealand’s third largest internet service provider for $245 million. The deal will see the ASX-listed telco pick up Call Plus Group and a related entity, 2Talk Limited, in a bid to sharpen its trans-Tasman appeal.

According to M2, Call Plus has a customer base of more than 400,000 services across consumer, business and wholesale market segments. The telco expects the Call Plus acquisition to contribute in excess of $NZ250 million revenue and $NZ45 million EBITDA in fiscal 2016.

http://www.businessspectator.com.au/news/2015/4/13/technology/m2-group-snaps-call-plus

As a result the stock closed at $11.55 - up nearly 11%  on the day


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## galumay (13 April 2015)

Interesting, after 4 months living in NZ I have never seen or heard of this company! The big players here are Voda and Spark who account for over 70% of what is a tiny market. The ISP's are all resellers of Chorus infrastructure.

Just had a hunt around and one of the ISP's run by Call Plus is Orcon who I have seen advertised on TV.

Regardless they appear to be a very small operator in a very small market, not sure how optimistic the numbers being thrown round are.


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## craft (21 April 2015)

Is this what the Momentum traders are after?

High volume breakout with gap followed by a pull back and now a new all time high.  Or does it depend on where it closes today?


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## craft (6 May 2015)

Time for MTU to walk away from IIN. TPM’s revised offer is 9.9 EV/EBITDA.  In my opinion MTU can’t trump that without incurring significant risk and departing significantly from acquisition discipline that has served it well in the past. 

Consolidating smaller enterprises like most recently, the call plus business brought at a 5.6 EV/EBITDA is what has produced this result.







Good as the ride has been if MTU gets sucked into a bidding war and overpays for IIN my faith in management will be blown and we will part ways.

Even if the real objective was to get TPM to pay more - another round of Russian roulette is not in order here, there's more reward to be obtained focusing back internally.  If IIN is really too cheap for its size and strategic importance - let SGT be the fly in TPM's ointment. (or is SGT already the puppet master behind the MTU bid?)


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## Ves (6 May 2015)

I don't think there ever was a realistic chance that MTU could swallow IIN,  because TPM has all the trump cards up their sleeves.

For instance,  and this hasn't needed to happen,  if MTU made an offer TPM didn't want to match,  TPM have the financial capability to buy a blocking stake on the market  (see VOC / AMM).  MTU do not have the balance sheet to use this strategy.

TPM is an interesting business,  and I admit,  until recently I didn't study it in much detail,  but I think they have a lot to gain by purchasing IIN.  TPM is a lot more vertically integrated than MTU because they own their own network infrastructure,   so I'd assume that they could also take a lot of costs out of IIN's business.   In my opinion their operational leverage is greater because they don't need to pay wholesale costs.  (PS: still trying to work out how much of this cost advantage will carry over to the post-NBN world  -  because the potential for Telstra / Optus / TPG - to start margin wars with their lower cost bases is a very real threat in the eventual end-game when broadband penetration reaches critical mass IMO).

I did make some early posts on this thread re post-NBN themes for MTU,  but starting to realise that more research is required.


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## Ves (6 May 2015)

Ves said:


> What interests me about MTU (other than it's a highly cash generative, capital light, compounding machine) is their apparent ability to maintain really low churn rates as a reseller.  This will be a very handy asset as the NBN (in whatever form it takes) ramps up over the next five or ten years,  *as other players have to rebrand as resellers due to the centralisation of ownership of the infrastructure.  If there is a larger shift from infrastructure players to a higher focus on reselling and marketing,*  those with the lowest cost structures and people capability will be the biggest benefactors.  I also see that management has been astutely diversifying their revenue streams (electricity is the newest) whilst keeping to their core advantages and competencies.




I have bolded the part from this previous post that I am now questioning.


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## craft (6 May 2015)

Ves said:


> I don't think there ever was a realistic chance that MTU could swallow IIN,  because TPM has all the trump cards up their sleeves.
> 
> For instance,  and this hasn't needed to happen,  if MTU made an offer TPM didn't want to match,  TPM have the financial capability to buy a blocking stake on the market  (see VOC / AMM).  MTU do not have the balance sheet to use this strategy.
> 
> ...




Hi Ves

I agree MTU has not got the clout to take on TPM and IIN is very important to TPM.

Optus (SGT) is the wild card here IMO.  

This is not logically MTU’s fight unless SGT is pulling the strings.


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## Ves (6 May 2015)

craft said:


> This is not logically MTU’s fight unless SGT is pulling the strings.




What's your reasoning to think that SGT might be pulling MTU's strings?


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## craft (6 May 2015)

Ves said:


> What's your reasoning to think that SGT might be pulling MTU's strings?




Because If I was Singapore Telecom and was serious about the position of the optus business in Australia I would want both MTU and IIN and it would be nice to acquire them as one. I would not want TPG to have either.

IIN and MTU are both infrastructure light reseller businesses, stand alone they are just challenger brands. But purchased by someone with financial clout and they provide an immediate seat at the NBN table as a major reseller. 

Are Optus prepared to allow TPM to be a third major in addition to Telstra? Are SGT even interested in a post NBN Aus? 

Don’t get misled by the SGT capitalisation on the ASX – they are as big as TLS.


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## Ves (6 May 2015)

I agree,  SGT is a massive company.   

They're in a lot of Asian jurisdictions  (I think total NPAT is around $5b),   and the board has to weigh up whether money invested in Australia is better than the returns they can get elsewhere in Asia.

The longer the bidding drags out,  the more it probably suits SingTel, as I assume their board would take longer to decide as their is more dynamics to consider for them.

In that sense,  what you said above is pretty feasible.   M2 Group is a reseller for Optus in Australia,  so they definitely do talk.


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## So_Cynical (6 May 2015)

craft said:


> Because If I was Singapore Telecom and was serious about the position of the optus business in Australia I would want both MTU and IIN and it would be nice to acquire them as one. I would not want TPG to have either.




The above makes a lot of sense, i thought it was strange for Sing tel to just do nothing and see its position and market share slip...as an IIN holder im also happy that now i have the option of getting some TPG shares instead of all cash, 75c FF divi will be nice as well.


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## Ves (15 May 2015)

Optus' comments in their quarterly results yesterday appear to indicate that they're not interested in pursuing IIN as part of their strategy.   They seem to be focusing on increasing the capital spend in their mobile & fixed network to take Telstra on head to head (and anyone else obviously).

It's quite telling that these big firms are spending a heap of capital on building infrastructure - despite the NBN.

Barring a surprise new entrant to the bidding,  it looks as if TPM will now control IIN,  as I wouldn't expect MTU to bid again based on their historical purchase multiples for acquisitions (nor would I want them to).

http://www.brisbanetimes.com.au/bus...g-in-battle-with-telstra-20150514-gh1t9w.html

On a side note,   the dynamics surrounding the NBN are more complicated than it first appears:   from my research it appears that it is widely misunderstood by the public and investors alike  (which isn't helped by the constant changes both politically and the conflicting noise between commercial interests).


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## craft (15 May 2015)

Ves said:


> Optus' comments in their quarterly results yesterday appear to indicate that they're not interested in pursuing IIN as part of their strategy.   They seem to be focusing on increasing the capital spend in their mobile & fixed network to take Telstra on head to head (and anyone else obviously).
> 
> It's quite telling that these big firms are spending a heap of capital on building infrastructure - despite the NBN.
> 
> ...




Interesting - what's the plan?




> The potential purchase of iiNet by TPG Telecom for $1.56 billion would create Australia's second-largest fixed-line internet provider. *But Mr Lew said Optus had a plan to deal with the situation.*
> "Clearly, if they get together they'll be the number two player but for us the primary focus still remains mobile," he said.
> 
> "But we believe that with the number of customers we have on the fixed platform today at 1.03 million customers we have the scale … to benefit from the national broadband network and have a profitable business."




The focus may be mobile - but will they accept becoming number 3 in fixed especially as driving up ARPU by packaging is the name of the game. I suspect not - but is the plan to acquire market share (MTU?) or can we expect a margin war to win business organically?


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## Ves (15 May 2015)

craft said:


> The focus may be mobile - but will they accept becoming number 3 in fixed especially as driving up ARPU by packaging is the name of the game. I suspect not - but is the plan to acquire market share (MTU?) or can we expect a margin war to win business organically?




There's a few themes here.    If you own your own infrastructure you don't have to deal with anyone else.   This is important because shifting data from A to B costs money.   If you don't own the cables then you have to pay to use them.   If you do own them you'll have higher margins  (if you have the scale and also much greater operating leverage).  Also think Fibre to the Basement vs NBN.   

Telstra,  Optus and TPM definitely fit in this bracket,  and I think you'll find that they actually co-operate with each other a bit with shared access. And, if anything, the NBN enhances what they already have.

Yes, the NBN does level the playing field  (mainly in the retail sector),  but as it only adds 123 nodes  (or close to)  it obviously doesn't cover every single patch of dirt or city street.   

Who owns the cables that link Australia to the rest of the world?  What about the inter city cables? How much does access to these cost?

There's also the fact that companies still need some infrastructure to connect to the NBN.   Can every ISP afford to build the "plug in" to the nodes?   What happens if they can't? What are their options and what does this mean for margins?

NBN Co is a wholesaler.  So they'll be selling blocks to ISPs in big chunks.    How much scale do you need to cost effectively buy these blocks from NBN Co and then on-sell the access to your customers?   What happens if the blocks are in bigger data chunks than your customers actually use?  The key here is that you cannot buy part blocks from NBN Co,  as far as I see it.   So where do you buy them?  Again think margins.... those with scale vs those who don't.

Another question to ponder:   why are some companies offering unlimited broadband plans and some aren't?

Telstra,  Optus and TPM  (and a few others like Vocus / Ammcom)  have also been building networks that are much faster than the NBN,    which corporates are using  (check out TPM's growth in the corporate sector, for instance).   These fall outside of the bounds of the NBN,  so my understanding is that it'll have no impact.    As big data grows,   the companies with this infrastructure will make all the money.

I don't see a price war between TPM / Optus / Telstra.    They own more cables than anyone else,   so they'll keep doing what they are already doing and profit on the fact that others need to access them  (whilst maintaining as much exclusive access for themselves as possible) which will help them control / win  a lot of the market that they don't already own.   There doesn't need to be a price war for a long time IMO,  because there's still heaps of low-hanging fruit for them to enjoy  (increasing user penetration / weaker competitors).


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## craft (15 May 2015)

Ves said:


> I don't see a price war between TPM / Optus / Telstra.




Nice post Ves but big picture I tend to disagree with how the consolidation of the industry now it has reached the bigger end will eventually play out.

Two's company - Three's a crowd.

I'm talking about major's - there will always be multiple niche and smaller challenger businesses.


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## McLovin (15 May 2015)

Ves said:


> Also think Fibre to the Basement vs NBN.




What are the broader economics of allowing private companies to cherry pick densely populated areas in the capital cities in terms of being able to deliver reasonably priced internet Australia wide, as the NBN (a government owned enterprise) aims to do?

I guess what I'm asking is how likely is it that the government will introduce legislation that limits competition to its own network?


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## Ves (15 May 2015)

craft said:


> Nice post Ves but big picture I tend to disagree with how the consolidation of the industry now it has reached the bigger end will eventually play out.
> 
> Two's company - Three's a crowd.
> 
> I'm talking about major's - there will always be multiple niche and smaller challenger businesses.



Genuine question...   do elephants in competitive industries metaphorically stamp their feet (more) whilst the industry is still expanding,   or does it become more intense when the industry reaches maturity?

The only reason for that question is that I don't think we are any where near maturity in the Australian telecommunications market.


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## Ves (15 May 2015)

McLovin said:


> What are the broader economics of allowing private companies to cherry pick densely populated areas in the capital cities in terms of being able to deliver reasonably priced internet Australia wide, as the NBN (a government owned enterprise) aims to do?
> 
> I guess what I'm asking is how likely is it that the government will introduce legislation that limits competition to its own network?



At the moment there is legislation on this for FTTB and competing with the NBN Co. I think it's called a Carrier License Condition (CLC).   It's not easy to get your head around it,  but it revolves around having separate entities for wholesale and retail.

Here's an AFR article:

http://www.afr.com/business/telecom...bring-back-fibretothebasement-20150106-12irpt



> Mr Turnbull’s new rules require TPG to split its wholesale and retail *divisions selling access to its high-speed network by July 1, and introduce *separate directors, staff and support systems.
> 
> It will only be allowed to charge rivals the same price that it charges its own retail division.




That article was about the events in early January 2015.  

NBN Co also previously tried to bring a case against TPG for violating this "anti-cherry picking" legislation and the ACCC said that this wasn't violated in that case.  Not sure if that was under the "old" rules or the "new" rules as they appear to have changed since December 2014's announcement by the government (see above).

Subsequent to January 2015 TPG went away and in under two months this news appeared:

http://www.businessspectator.com.au/article/2015/2/20/technology/tpg-back-its-fibre-horse

They're already back selling and claiming to have met the new conditions.  

Just another dynamic.  So many moving parts to watch going forward.

I don't think the government can limit (ie. stop) other networks  (you know those with better technology) without actually buying them for market price.


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## craft (15 May 2015)

Ves said:


> Genuine question...   do elephants in competitive industries metaphorically stamp their feet (more) whilst the industry is still expanding,   or does it become more intense when the industry reaches maturity?
> 
> The only reason for that question is that I don't think we are any where near maturity in the Australian telecommunications market.




When does an elephant move – when it damn well wants too would be my guess.

In house joke in our family that I don’t know squat about elephants. My youngest daughter shot of a serious of quick fire questions at me the other day including “how do elephants drink water” and I got done like a dinner when I said with their trunks


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## skc (15 May 2015)

craft said:


> When does an elephant move – when it damn well wants too would be my guess.
> 
> In house joke in our family that I don’t know squat about elephants. My youngest daughter shot of a serious of quick fire questions at me the other day including “how do elephants drink water” and I got done like a dinner when I said with their trunks




Buy this for her birthday.


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## craft (15 May 2015)

skc said:


> Buy this for her birthday.
> 
> View attachment 62586




SKC you're a legend - I so have to get that, she would love it.


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## McLovin (15 May 2015)

Thanks for the post, Ves. Digging around a little deeper it seems as though the government has slowly been changing from a monopoly service provider with a universal pricing scheme to one that will be forced to compete and will have some autonomy in setting wholesale pricing. It does seem as though the government will be using other providers networks to subsidise the rollout of wireless and satellite. They euphemistically refer to it as an "industry contribution mechanism". I _will_ not be guessing at how well that will work.




Ves said:


> So many moving parts to watch going forward.




Yeah, it was all so much simpler when TLS just owned everything.

When the whole NBN thing kicked off, I thought it would be much simpler with NBN becoming like a new Telecom, but it's anything but.


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## VSntchr (25 August 2015)

M2 definitely under-performing the market since the release of the FY15 accounts. The result looked pretty good to me and guidance was fairly solid. They did speak about competition intensifying....but as the low cost provider - wouldn't this result in MTU gaining a bit of a preference over TPG? Doesn't seem to be the case as TPG is holding up alot better in the last few days.


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## VSntchr (25 August 2015)

M2 definitely under-performing the market since the release of the FY15 accounts. The result looked pretty good to me and guidance was fairly solid. They did speak about competition intensifying....but as the low cost provider - wouldn't this result in MTU gaining a bit of a preference over TPG? Doesn't seem to be the case as TPG is holding up alot better in the last few days.


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## VSntchr (28 September 2015)

Interesting move this morning on the market with VOC and MTU announcing a scheme arrangement to merge. MTU holders to receive 1.625 VOC for every MTU share held.

Initial thoughts: 

MTU holders also have an ex-div on Friday.
In the approval of TPG/IIN, the ACCC warned that any further consolidation of the sector would attract much further scrutiny. That was likely with reference to something like TPG/MTU merging...but MTU/VOC would still be quite relevant. 
$6.49*1.625 is a nice premium on current market price for MTU holders!


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## skc (28 September 2015)

VSntchr said:


> Interesting move this morning on the market with VOC and MTU announcing a scheme arrangement to merge. MTU holders to receive 1.625 VOC for every MTU share held.
> 
> Initial thoughts:
> 
> ...




- I had a signal to trade MTU long and short some other Telco last week. But I declined! 
- I am very surprised that VOC/MTU could move so soon after AMM deal - ink's barely dry.
- It's official... pairs trading in the Telco sector is down to the final 3 or 4 companies.
- I can't believe MTU traded at square to the offer near open. I shorted it 
- I didn't short enough of it :bad:
- I couldn't find any explicit mention of the dividend coming up for MTU in the agreement... anyone?
- I am sure someone intelligent here has mentioned about MTU being the target.


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## skyQuake (28 September 2015)

skc said:


> - I had a signal to trade MTU long and short some other Telco last week. But I declined!
> - I am very surprised that VOC/MTU could move so soon after AMM deal - ink's barely dry.
> - It's official... pairs trading in the Telco sector is down to the final 3 or 4 companies.
> - I can't believe MTU traded at square to the offer near open. I shorted it
> ...




Wording on the div is unclear. It seems that any _newly announced_ div wont make the cut. But MTU's _old_ is already announced so it should be fine?

On the corp governance side, I am very happy aussie co's havent been having mysterious run-ups before these announcements. Well done ASIC!


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## skc (28 September 2015)

skyQuake said:


> Wording on the div is unclear. It seems that any _newly announced_ div wont make the cut. But MTU's _old_ is already announced so it should be fine?
> 
> On the corp governance side, I am very happy aussie co's havent been having mysterious run-ups before these announcements. Well done ASIC!




Yes you'd have to assume that the deal isn't adjusted for this old dividend.

You got to give it to VOC though... a few months back, MTU share price was worth ~2x that of VOC. Pre-annonucement however the ratio has reduced to ~1.3x. Great timing!


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## craft (28 September 2015)

skc said:


> Great timing!






skyQuake said:


> On the corp governance side, I am very happy aussie co's havent been having mysterious run-ups before these announcements. Well done ASIC!




Relative strength of the market price over the last few years. (sorta tracked each other though MTU has paid lots more in Divs over the period).




Seems a lot of this 'fortunate' movement just prior to transactions is happening lately - Makes you wonder if the timing on transactions are reactionary to otherwise unrelated market movement or is there some manufacturing of good timing going on? 

Sold out of VOC a few years back for way less then I'll be effectively buying back on this proposal. Better buff up on what's been going on over there I guess.

Once ACCC effectively closed off any Optus option theirs probably not a better alternative. I  guess we'll find out shortly if there is.


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## McLovin (28 September 2015)

craft said:


> Sold out of VOC a few years back for way less then I'll be effectively buying back on this proposal.




You too ay. I sold out at about $2.60ish from memory. I remember at the time thinking they just weren't getting the traction they were talking up. Of course as soon as I sold the thing went off like a rocket and they bedded down their acqusitions.


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## Ves (29 September 2015)

I believe the rationale behind the merger is a good idea.   It shores up the 4th Telco spot in the Australian market  (unlikely there will be any further major corporate activity now).

VOC's cash flow and balance sheet strength is also a bonus for MTU.  I had the feeling that MTU's balance sheet was starting to get inflexible / stretched after the latest round of acquisitions.

The merger also fills in some of the infrastructure gap for MTU,  reduces their cost base further,  and creates synergies.   VOC has more exposure to corporate / government clients, and merging with MTU gives them more exposure to the retail sector through which they can leverage their infrastructure.

I'm not 100% sold on the reliability of VOC's earnings going forward  (but in all fairness I'm not overly familiar with the business at the moment).   However,  on a basic look through,  it doesn't strike me as an unfair deal for MTU shareholders,  and at least a scrip offer gives continued exposure to the business for those who keep holding.


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## craft (1 October 2015)

For a long time I thought the MTU roll-up of customers would eventually come to rest with Optus.
But the ACCC pre-emptive statement following the TPM-IIN deal put paid to that. So locked out of the customer acquisition via purchase game not only do Optus get to watch MTU slip into the hands of VOC but yesterday TPM also rubbed salt into the wound by switching a big chunk of Wholesale customers away from Optus to Vodaphone.   I wonder what Optus’s global perspective on Aus is at the moment?.

Can’t help but think ACCC has changed the course of events. From a selfish perspective it would have been nice if Optus hadn’t been benched by the umpie before they even got a kick.  The dance for the last big customer base could have got interesting – but instead the umpire blows the whistle and a lightweight picks it up uncontested.  But on the upside the VOC/MTU combination could still be an interesting challenger business to stay exposed too. (undecided yet)


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## craft (8 February 2016)

*Re: MTU - M2 Telecommunications Group*



craft said:


> *??*
> 
> Depends on your perspective,
> 
> ...




Farewell MTU - Under the scheme of arrangement with VOC it traded for the last time today.

An update of the 10 year total return graph pretty much says it all.  10K to 900K+





If you follow the business these companies can be found and ridden for long periods (and not just in hindsight.)


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## helpme (9 February 2016)

M2 is worth around 2.25B before trading halt (9Feb2016). Vocus is worth around 1.71B today. After merger, M2 shareholders get 1.625 Vocus shares. Therefore, merger values M2 at 2.78b. M2 shareholders is going to make a *gain of 23.5%* based price before halt? Is this correct? Thank you.


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## skc (9 February 2016)

helpme said:


> M2 is worth around 2.25B before trading halt (9Feb2016). Vocus is worth around 1.71B today. After merger, M2 shareholders get 1.625 Vocus shares. Therefore, merger values M2 at 2.78b. M2 shareholders is going to make a *gain of 23.5%* based price before halt? Is this correct? Thank you.




Unfortunately it doesn't work that way. You need to look at the transaction on a per share basis.

MTU had 184.7m share on issue... so VOC would issue 1.625 x 184.7m ~300m new shares for MTU holders. These 300m new VOC shares have a value of ~$2.2B, which is exactly what MTU was worth on it's last day.


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## helpme (11 February 2016)

skc said:


> Unfortunately it doesn't work that way. You need to look at the transaction on a per share basis.
> 
> MTU had 184.7m share on issue... so VOC would issue 1.625 x 184.7m ~300m new shares for MTU holders. These 300m new VOC shares have a value of ~$2.2B, which is exactly what MTU was worth on it's last day.




Thank you for your reply. 

Can I calculate in another way? VOC is worth $7.34 per share today. Therefore, MTU is worth 1.625 x 7.34 = $11.93. Suppose someone buys MTU at $12.42. At today's price, he has made a loss of 3.95%. Is this correct? 

By the way, is this acquisition fully funded by VOC shares? No cash involved? I don't see any cash being mentioned in the news release. I wonder when one can receive the VOC shares. With MTU halted, seeing VOC dropping without the option to sell out can be scary.


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## skc (11 February 2016)

helpme said:


> Thank you for your reply.
> 
> Can I calculate in another way? VOC is worth $7.34 per share today. Therefore, MTU is worth 1.625 x 7.34 = $11.93. Suppose someone buys MTU at $12.42. At today's price, he has made a loss of 3.95%. Is this correct?




Yes that is the correct calculation, but the prices you've used are not correct.

The last day of MTU trade was 8 Feb, where VOC closed at $7.45. So the implied value of MTU shares = 1.625 x $7.45 = $12.11. Compare that to where MTU closed @ $12.17. The difference is only ~0.5% and can be due to a range of factors involved in the closing match.



helpme said:


> By the way, is this acquisition fully funded by VOC shares? No cash involved? I don't see any cash being mentioned in the news release. I wonder when one can receive the VOC shares. With MTU halted, seeing VOC dropping without the option to sell out can be scary.




All script. It's never a good thing to lose control of your holding and certainly worse during a negative volatile period. If you are trading for the short term this is a situation that is best (and easily) avoided. However, if you are investing in the long term it's probably a small enough risk no worth concerning about imo.


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## System (25 February 2016)

On February 23rd, 2015, M2 Group Ltd (MTU) was removed from the ASX's official list in accordance with Listing Rule 17.11, following implementation of the scheme of arrangement between the Company and its shareholders in connection with the acquisition of all the shares in the Company by a wholly owned subsidiary of Vocus Communications Limited.


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