Why the MNF Group share price has been falling

Last month MNF Group Ltd (ASX: MNF) reported its half-year results for the period ending December 31 2018. Below is a summary of the results with comparisons to the prior corresponding half year.

  • Revenue of $98.1m, down 16%
  • EBITDA (operating income) of $9.8m, down 16%
  • Net profit of $3.1m, down 49%
  • Dividend of 2.1cps, down 51%
  • Earnings per share (EPS) of 4.18c, down 50%
  • FY19 guidance for EPS between 15c-16.4c
  • FY20 guidance for EPS between 20.4c to 22.4cps

The MNF Group share price fell around 10% on February 28 when it reported its full year results and I also sold down around 80% of my holding on the day unconvinced the group’s valuation justifies a share price above $4.

In short, parts of its core business appear to be going backwards and I also remain unconvinced about the move into selling PennyTel mobile phone plans to older consumers in regional Australia.

As such I am kicking myself for not selling prior to the results and have decided to call time on MNF Group largely on valuation and operational outlook grounds. However, I do still think it has a strong founder-led management team and decent balance sheet.

The whole telecommunications, internet services and voice over internet sector has struggled recently with the likes of Telstra Corporation Ltd (ASX: TLS), TPG Telecom Ltd (ASX: TPM) and Vocus Group Ltd (ASX: VOC) on the nose.

Of course MNF is primarily an online voice and software business rather than NBN-facing internet services provider, but at $3.95 the stock still looks expensive to me given its latest update and guidance that relies on a significant turnaround out to June 2020.

It may well go onto perform well, but for me there are better market-beating opportunities available elsewhere.

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Motley Fool contributor Tom Richardson owns shares of MNF Group Limited, TPG Telecom Limited, and Vocus Communications Limited.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of and has recommended MNF Group Limited and Telstra Limited. The Motley Fool Australia has recommended TPG Telecom Limited and Vocus Communications 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 Scott Phillips.

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