Vita Group Limited

Vita Group Limited

Vita Group Limited (ASX: VTG) is an established operator of retail telecommunications product resellers. It holds a Master Agreement with Telstra Corporation (ASX: TLS) to run 100 Telstra retail outlets. This is a key driver of its performance over the last half a decade from which it evolved as an operator earning circa $7m in underlying earnings to $18m in FY15.

Vita Group has an interesting background, the founders originally believed each store would earn circa $250k in EBITDA (pre corporate overheads) p.a. however this has been substantially exceeded (circa $500k in FY15). In order to achieve this, management over several years developed a sales orientated culture and invested in internal systems to optimize commission receipts and keep staff accountable to sales targets. Management expect continued growth in EBITDA per store as productivity grows and synergies are realized via the store footprint and product mix.

The largest driver of profitability is commissions from Telstra. These comprise payments of commissions for sales, bonus payments from high net promoter scores and bonus payments for stores whom outperform in terms of sales. Management have flagged that commissions will likely rise in future as a result of Telstra’s desire to maintain market share in NBN and increasing data consumption via mobile devices.

Further growth potential is noted in Vita Group’s plans to establish a network of Telstra’s Business Centers (TBC’s) to serve small & medium enterprises and plans for expanded enterprise capability to serve larger corporates/government departments.

The Montgomery portfolios were lucky enough to acquire a position in Vita Group prior to its recent rise above $3. Clearly the price is not as attractive as it was only several weeks ago, however we still see room for further upside.

Scott Shuttleworth is an analyst at Montgomery Investment Management. To invest with Montgomery domestically and globally, find out more.