Why the MNF Group Ltd share price could hit another record high in 2017

The MNF Group Ltd (ASX:MNF) share price has been on fire over the last 12 months.

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The MNF Group Ltd (ASX: MNF) share price fell slightly in morning trade after the online voice communications specialist reported more strong organic growth for the six-month period ending December 31 2016. Below is a summary of the results.

  • Revenue of $91.4 million, up 9% over prior corresponding period (pcp)
  • EBITDA (operating income) of $10 million, up 22% on pcp
  • Net profit of $4.9 million, up 21% on pcp
  • Earnings per share (EPS) of 7.17 cents, up 19% on pcp
  • Interim dividend of 3.75 cents, up 7% on pcp
  • Pro forma (adjusted) forecast for 17.1 cents in full year EPS

This looks a typically solid result from a group that has once again delivered a mix of organic and acquisitive growth through the strong performance of its domestic online voice businesses alongside its newly-acquired TNZI business.

The MNF Group now has several moving parts with its domestic retail online voice service offerings largely operating under the MyNetFone and Connexus brands, while its domestic wholesale business operates under the Symbio Networks brand. In addition the wholesale business commonly cross-sells the iBoss security product to its enterprise clients.

Both the domestic retail and wholesale business operations saw strong margin growth and growing revenues to make for a juicy organic earnings growth combination this half.

However, perhaps the group's best medium-term growth driver is its global wholesale TNZI voice minutes business that is also supported by its various software products including Symbio and the Tollshield security platform.

MNF Group is continuing to invest heavily in the TNZI business's network infrastructure to open up more global markets across Asia in particular and win more enterprise clients across its global networks. There's also the opportunity to cross sell MNF Group products to clients once they are using the TNZI network.

MNF also recently announced a virtual mobile network operation agreement with Telstra Corporation Ltd (ASX: TLS). The deal to provide a virtual mobile network to enterprise clients means MNF Group can piggyback off the Telstra network in a similar way to discount consumer sim-card provider Amaysim Australia Ltd (ASX: AYS) resells access to the Optus network.

The latest announcement from MNF Group was the $18 million deal to buy online conferencing business CCI International that should provide more cost saving and cross-selling opportunities as MNF Group expands the eco-system available to its enterprise clients.

Foolish takeaway

This company looks to tick all the boxes as an exciting small-cap with a strong balance sheet and expert management team plotting its growth profile into the digital future of online voice services. That future likely holds some margin-expanding potential that should support more strong growth for the company over the years ahead as it retains one eye on acquisitive opportunities.

I think the shares look a buy at $4.74, as although it is on a high multiple of earnings, MNF Group looks a high-quality small-cap with a bright future.

Motley Fool contributor Tom Richardson owns shares of MNF Group Limited. You can find Tom on Twitter @tommyr345 The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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