MNF Group Ltd (ASX: MNF) this morning reported a 28% increase in revenue for the first half of FY2018, and a 25% increase in net profit after tax (NPAT) compared to the previous corresponding period.
The results indicate the voice telecommunications provider has enjoyed another period of strong organic growth, with customer numbers on the rise and gross margins improving.
The results are broadly in-line with management expectations, and the company expects to continue its historical trend of delivering stronger second half performance.
A 4.30 cents per share dividend was declared for the period, a 15% increase on the previous interim dividend. The dividend represents 52% of earnings per share, allowing MNF to reinvest profits for further organic growth or by acquisition.
In today's announcements, the company also stated it would relaunch its Pennytel brand, focussing on the over 50s demographic in the mainstream retail market.
The initial strategy is to lead with a mobile virtual network operator (MVNO) product, which basically re-sells access to the Telstra Corporation Ltd (ASX: TLS) mobile network. After that it will introduce an NBN broadband offering once the brand is established.
The Pennytel relaunch is expected to negatively impact full-year FY2018 earnings, with an updated NPAT forecast of $12.5 million for the period, down from $15.0 million. Management anticipates that the Pennytel MVNO will be earnings accretive from the second half of FY2019.
MNF management reiterated its stance that further growth by acquisition this financial year may be sought, should the right opportunity present. The company had a cash and cash equivalents balance of $21.5 million as of 31 December 2017, as well as access to $17.1 million of debt funding to call on short notice.
Surprisingly, although revenue rose 28% for the period, cash receipts from customers actually fell when compared with the same time last year. Combined with a significant increase in payments to suppliers for the period, MNF recorded negative operating cash flow of $21.7 million.
That figure contrasts with positive operating cash flow of $6.9 million for the first half of FY2017. This may be a simple matter of timing; however, it is well worth keeping an eye on in future reporting.
Foolish takeaway
MNF's first half result announcement illustrates another successful period of organic growth for the company, yet the share price is markedly lower this morning. While the company performance in isolation is impressive, the market appears to have been expecting more from a stock trading on a lofty trailing price to earnings (P/E) multiple of 35.
Even though the company is performing strongly, I expect MNF shares to continue to trend lower as the market adjusts to the latest growth numbers.
