MNF Group Ltd (ASX: MNF) shares briefly hit an all-time high of $6.39 today, continuing an impressive recent run that has seen the share price increase 45% over the last 6 months.
MNF provides voice communications solutions to Australian retail and wholesale customers, and is growing its New Zealand and global wholesale businesses.
MNF customers use the digital Voice Over Internet Protocol (VOIP) to make cheap international phone calls using an Internet connection, with much greater capability and flexibility compared to the old landline telephone network.
Digital communication networks like MNF's are the future and stand to save users a lot of money while providing an improved service.
MNF has been one of the best performing ASX-listed stocks over the last 10 years, and the share price has continued to climb since the company's recent Annual General Meeting on 14 November. Then, management forecast a FY2018 NPAT increase of 24% based entirely on organic growth only and ignoring any potential profits from new major customers or acquisitions.
The FY2018 profit guidance also includes higher expenses from research and development and increased administrative costs due to growth.
It appears management has therefore provided a relatively conservative profit estimate and given the company's track record of growth and acquisitions, I would not be surprised if MNF is ahead of expectations in time for its half-year update.
Such growth comes at a price, however, and MNF shares are not cheap at around 35x FY2017 earnings. Last financial year, MNF's revenue increased by 19% while NPAT rose 34%. The company also paid out a fully-franked dividend of 8.25 cents for the year that was 18% higher than FY2016.
Costs have not grown out of control as you often find with small technology firms, and the company generates positive operating cash flow.
In terms of financial position, MNF's cash and cash equivalents at the end of FY2017 almost covered total current liabilities, suggesting strong liquidity. Furthermore, MNF uses very little leverage to finance its operations, so the company is unlikely to go bust any time soon, even if business conditions deteriorate.
Foolish takeaway
MNF has continued to perform strongly within a domestic telecommunications sector that has been suffering from decreasing margins and higher competition. The company has a strong financial position and looks set for continued growth and success. For my money MNF is the pick of the ASX-listed telcos and could be a potential takeover target for the likes of Telstra Corporation Ltd (ASX: TLS).
