This morning innovative internet services provider My Net Fone Limited (ASX: MNF) posted a net profit of $3.1 million on revenues of $30.3 million for the six-month period ending December 31, 2014. The revenue and net profit were up 6.4% and 31% respectively over the prior corresponding period (pcp).
Earnings per share were up 31% to 4.98 cents per share, while the dividend was 2.5 cents per share up 25% over the pcp.
Strong organic growth
The company's results are a textbook example of the power of operating leverage where small increases to revenues can translate into big profit increases and share price surges.
The business has built its own independent Voice over Internet Protocol (VoIP) network which serves private residences, businesses and public sector organisations.
The attraction of talking over the internet to its fast-growing client book is the reduced cost and ease of operations. The business now supplies these types of services to parts of the Tasmania, Victoria, NSW and Queensland state governments.
The advantage to My Net Fone is that it can add customers to its pre-built network for minimal extra cost meaning new revenues fall largely to the bottom line.
Indeed the business increased its earnings margin over the pcp and continues to develop its national network, technology and intellectual property to deliver margin uplift and fast-rising profits.
Outlook
Evidently the most exciting aspect of My Net Fone is the scalability of the business, with the potential for continued organic growth via its easy to sell products.
Although risks do remain over larger rivals such as Telstra Corporation Ltd (ASX: TLS) or TPG Telecom Ltd (ASX: TPM) attempting to muscle in on its space.
Overall, the company reaffirmed guidance for earnings per share of 11.35 cents in financial year 2015, which would place it on 26x forward earnings when selling for $2.97.
This looks reasonable value for a junior tech stock delivering estimated EPS growth of 22.6% with potential to keep growing long into the future. Indeed, with its competitive advantages and strong balance sheet it could be the kind of company to interest Warren Buffett, but not as much as these two….
