The MNF Group Ltd (ASX: MNF) share price was a very strong performer on Tuesday following the release of its full year results.
The communications software specialist's shares finished the day 12.5% higher at $4.32.
What happened in FY 2019?
For the 12 months ended June 30, MNF Group reported a 2.3% decline in revenue to $215.6 million, but an impressive 89% lift in recurring revenue to $73.6 million. The latter now accounts for 34% of its revenue, compared to 18% a year earlier.
Thanks to this positive shift in its revenue mix, which led to a material improvement in its gross margin from 31% to 38%, the company was still able to grow its profits despite the revenue decline.
MNF Group posted an 11% lift in earnings before interest, tax, depreciation and amortisation (EBITDA) to $27.2 million and underlying NPAT-A growth of 13% to $15.9 million. Underlying EPS-A growth came in 12% higher year on year to 21.7 cents per share.
Looking ahead, while the likes of Telstra Corporation Ltd (ASX: TLS) and TPG Telecom Ltd (ASX: TPM) continue to have their margins squeezed by the NBN, management believes it has unlocked a large recurring revenue opportunity as copper networks are replaced by VoIP services.
Combined with a shift to unified communications in the cloud (UCaaS), management believes the company is well-positioned for long term growth.
Especially given its plan to expand its network and platform into Singapore and other South East Asian countries including Brunei, Cambodia, Indonesia, Lao, Malaysia, Myanmar, Philippines, Thailand, Timor-Leste, and Vietnam.
Combined with Australia, New Zealand, and Singapore, these countries give MNF Group a 650 million (person) market opportunity.
In the near term, though, the company has reaffirmed its FY 2020 EBITDA guidance of $33 million to $36 million. This guidance equates to year on year growth of 21.3% to 32.3%.
