VitaGroup Update

By Roger Montgomery | More Articles by Roger Montgomery

We understand many investors have been watching the recent share price action of Vita Group closely.  Many have expressed dismay at the slump following ‘news’ that Telstra was renegotiating its terms with its licencees – something that Telstra does every quarter and ‘more than 50 times’ with VTG.

One of our brokers follows the company closely and to save reinventing the wheel and in order to be able to report to you in a timely fashion, here is that broker’s take on today’s update:

“Overall: Vita Group (VTG) have released an update statement regarding changed commercial terms with Telstra. They have noted changed terms but additions to the group’s network of Telstra retail stores (not specified as yet).

“Whilst specific earnings clarity has not been provided we believe:

1) the company would have to provide guidance if earnings expectations were to be materially different from consensus estimates;

2) VTG note they expect to accelerate its physical optimisation program with the number of additional stores to be communicated in due course; and

3) VTG expect to see volume improvement, offset by some margin pressure as a result of the changes. Maintain BUY.

“Whilst today’s statement has not provided definitive earnings clarity, we do believe it should reassure the market that the majority, if not all, of the remuneration construct changes may be offset from a combination of net store additions and other favourable remuneration changes. Whilst further investigation is necessary we believe at current levels the risk-reward suggests a strong investment proposition. Based on our estimates the stock is trading on a FY17F PE of 12.6x with 16% EPS growth.”

Roger Montgomery

About Roger Montgomery

Roger Montgomery is the Chief Investment Officer of Montgomery Investment Management,, and author of Alan Kohler has referred to Roger as "one of the nations smartest and most successful value investors".

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