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MNF share price on watch after FY 2020 guidance downgrade

The MNF Group Ltd (ASX: MNF) share price will be one to watch on Tuesday.

This morning the communications software specialist released its half year results and announced a downgrade to its guidance.

What happened in the first half?

During the first half of FY 2020, MNF delivered a 14% increase in revenue to $112 million. This was driven by strong sales growth in the Domestic Wholesale business, which offset declines in the Direct business and Global Wholesale business.

Thanks to a 3.7 percentage point improvement in its gross margin to 40.2%, its gross profit grew 26% on the prior corresponding period to $45 million.

This ultimately led to EBITDA growth of 52% to $16.9 million and net profit after tax growth of 20% to $3.7 million. The latter was up 35% on the prior corresponding period on an underlying basis. Earnings per share came in 16% higher than a year ago at 4.83 cents.

In light of its solid profit growth and strong balance sheet, the MNF board elected to increase its interim dividend by 19% to 2.5 cents per share.

“Very strong demand.”

The company’s CEO, Rene Sugo, revealed that it is experiencing very strong demand for many of its services.

He said: “This is an exciting time for MNF Group as we continue to see very strong demand for our core products – phone numbers with number portability. We are seeing significant organic growth from our existing domestic and global customers as they tackle the opportunities presented to them by the impending completion of the NBN roll-out and ISDN shut-down.”

“Our total numbers on network increased to 4.1m in the period, representing an annualised growth rate of 16%, with a considerable order volume going into H2,” added Mr Sugo.

Guidance.

The company has reaffirmed its EBITDA guidance, which is expected in the range of $36 million to $39 million (on a post AASB16 basis).

However, it has downgraded its net profit after tax guidance from between $13.5 million and $15.5 million to the range of $10 million to $12 million. Management advised that this is due to changes in R&D tax concessions, increased amortisation, non-cash employee share plans, and AASB16 effects.

Underlying net profit after tax has also been downgraded to the range of $14.7 million to $16.7 million. Previously it was targeting $18 million to $20 million.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of MNF Group Limited. The Motley Fool Australia 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 Scott Phillips.

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