Why this top fund manager likes MNF Group Ltd

NAOS Absolute Opportunities Co Ltd (ASX:NAC) is a fan of MNF Group Ltd (ASX:MNF).

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I think it's always worthwhile having a look at what other top investors are doing and what their top holdings are. You get a sense of where they think the best value is, or which stocks are going to beat the market over the coming months or years.

One fund manager I take interest in is NOAS Asset Management, which runs the listed investment company (LIC) NAOS Absolute Opportunities Co Ltd (ASX: NAC). This LIC's portfolio has returned an average of 18.63% per annum over the last three years.

Its top performing share has been MNF Group Ltd (ASX: MNF), which is a Voice Over Internet Protocol (VOIP) business to Australian retail and wholesale customers. VOIP is a much cheaper form of connection than the traditional landline phones.

It has been a strong performer, with both the profit and share price growing at a very good rate over the last few years. In FY17 alone revenue grew by 19%, gross profit grew by 21%, earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 34% and earnings per share (EPS) grew by 29%. Pleasingly, the dividend also grew by 18%.

The trend of services being offered digitally via the internet is only going to increase. Plus, businesses are always looking to reduce their costs. Both trends should help MNF continue to grow at an above-average rate.

Management gave a forecast for FY18 at the AGM a month ago. The prediction is that gross profit will grow by 23%, EBITDA will grow by 19% and EPS will grow by 18%. This forecast is purely based on organic growth and doesn't include any new major customers or acquisitions. This is an impressive forecast.

Foolish takeaway

MNF is currently trading at 32x management's conservative FY18's estimated earnings. It has a trailing grossed-up dividend yield of 1.8%. I think MNF is well worth considering at this price, even after its huge rise after the last five years.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended MNF Group Limited. 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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