Small Caps | Sep 09 2021
MNF Group has transformed, realigning its business to focus on Asian expansion with high-margin communications software
-Recurring revenue growth suggests significant acceleration in FY22
-Wider product offerings may be on the cards
-MNF Group aspires to 100m on-net phone numbers in Asia/Pacific by 2030
By Eva Brocklehurst
MNF Group ((MNF)) is intent on becoming the top enabler of voice communications across Asia and to this end has realigned its business, with a current focus on expanding in Southeast Asia. FY21 has been a transformational year as most retail operations have been offloaded in order to concentrate on high-growth, high-margin software communications services.
So, the time had come for a re-rating, Morgan Stanley observes, as the company delivered on expectations with its FY21 results. Recurring revenue growth of 19% suggests significant acceleration in FY22 is likely.
The business is building a strategic asset and the broker observes the market has been patient, despite a lack of guidance or clarity on the outlook. This is largely because of the realignment to the high-growth parts of the business.
The reorganisation highlights the recurring, software-based and scalable nature of the products, Ord Minnett agrees, which also better aligns the business with its target customer cohorts.
The segments are reorganised under communication (CPaaS), telecoms (TaaS) and unified communication (UCaaS). Moelis expects gross profit growth across all three continuing business segments, offset by the discontinued earnings from the Direct segment and additional operating expenditure in Singapore.
The Direct business has been sold for $20m up front and $11m over FY22 and this, along with cash and undrawn debt facilities, provides ample funds. Moelis believes MNF Group can grow operating earnings (EBITDA) at around 16% between FY22-24.
Morgan Stanley also notes repeated references to messaging, which signals wider product offerings may be on the cards. Still, the broker remains wary of expenditure, which is high, and the change in segment reporting means there are numerous ways estimates could be wrong for FY22.