Ann: M2 issues strong earnings growth guidance fo, page-18

re: Ann: M2 issues strong earnings growth gui... Hi Ivanovich. I dont know about a fundamental re-rating occurring at the moment but I agree with you that a price of $2.75 is on the cards although it may take some time to get there. If IIN which is roughly the same size as MTU but pays a smaller dividend and has more debt is worth its current price of $2.87 common sense would tell you that MTU which pays better dividends, has far less debt and significantly greater cash reserves is undervalued (or alternatively that IIN is overvalued). If I buy IIN at its current price of $2.87 the dividend is marginally over a 3% yield. If I buy MTU at its current price of $2.07 I get a yield of over 4.8% with higher to follow in 2011. The difference between the companies seems to be that IIN has been around longer and is well known and seen as a blue chip while MTU has had a recent spectacular rise and is not yet widely recognised. In time I see MTU catching up in terms of share price but its likely to take some time and is contingent on MTU continuing to make consistent profits.

Another interesting comparison is MTU and MAQ. Both companies are quite similar in terms of size and type of business but MAQ has only just announced its second dividend in the last 10 years or so. It hoards its profits and is sitting on massive accumulated profits so it is significantly undervalued because of its tight arse directors. If MAQ ever decided to declare dividends consistently twice a year the way that MTU and IIN do its price would probably rise by 50%. MAQ is likely to continue to remain undervalued unless someone takes it over and unlocks its value (unfortunately its too big for MTU to acquire).

2011 should see the end of MTU's recent year on year huge increases in revenue and profits but no company can be expected to continue to grow the way that MTU has indefinitely. I see MTU's share price eventually settling at somewhere around your figure of $2.75 (around 30% higher than it is now) as long as there is reasonable organic growth beyond 2011 and it keeps consistently making profits. If the price of MTU doesnt rise and it stays at its current $2.07 it will pay 5% to 6% plus fully franked in 2011 and probably higher beyond 2011 which is fabulous and with an effective zero net debt and ample cash reserves the risk with MTU is low. MTU follows one of Renee Rivken's classic rules-invest in companies with a low downside risk but significant upside potential.