MNF shares hit new heights as investors have faith the telco will meet its profit target
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The telco sector has been a graveyard for investors, but one player which is pushing into Asia has seen a surge in its share price amid rising optimism that its big profit target for the year ahead looks achievable.
MNF Group (ASX:MNF) sits alongside Telstra, Optus, TPG and Vodafone as owning and operating its own nationwide telecom network.
And its shares are at 12-month highs amid confidence earnings are back on track and that its forecast profit for the year ahead is achievable. Earnings softened the past year due to extended delays in finalising the takeover of Inabox, a contested takeover, and the run-off of some low margin business in New Zealand.
Never heard of it? MNF launched its domestic voice over internet protocol (VoIP) network well ahead of its competitors, which has given it a critical edge in the unfolding field of ‘unified telecommunications as-a-service’, a platform which sits at the heart of a raft of services from Uber and the like, and through to online ecommerce services such as cars, real estate and beyond.
MNF provides a vast array of telephone numbers to its clients, for example, which is a decidedly old hat method of contact in this digital age, but thanks to e-commerce, growth is showing no signs of flagging.
“Phone numbers have been around for about 150 years and you’d think that’s a long time for the same technology to exist and given the rate of disruption that we have these days,” MNF’s chief executive and co-founder, Rene Sugo, told analysts at its annual results briefing late last month.
“But fundamentally, phone numbers are unique, because they provide global any-to-any connectivity at any time, in real time, anywhere in the world. And that is the only technology that lets us do that today.
“Things like user IDs, Facebook IDs … are islands in the global network. And when these social networks or private networks want to reach any user in the world, they themselves even default to phone numbers.”
At their heart, applications like whatsapp actually use a phone number as the identifier, he said.
“So even those next generation applications are relying on a phone number.”
Similarly, two-step security authentication used by banks and many other groups rely fundamentally on telephone numbers.
“A phone number is a global unique identifier and they’re so versatile. We’re still finding new applications to do with them every day,” Sugo argues.
When using Uber, for example, a virtual cloud phone number is used and allocated for the duration of a driver passenger or passenger driver call, and any number of these calls may be active at any one point in time, so a pool of numbers is required.
This means that MNF sits in a high-growth corner of the telco industry, with a unique selling point as it heads offshore.
Singapore will be fully operational by year end, and MNF reckons it can speed up its entry into new markets by using a ‘cookie-cutter’ expansion process.
“We’re doing Singapore in a third of the time it took us to do New Zealand,” Sugo told Stockhead. “Our strategy is to cover 100 million people.”
MNF has an internal KPI of $1 of EBITDA [earnings before interest, tax, depreciation and amortisation] per head of population. In the Australian market alone this gives it a potential $2.5m of EBITDA which is growing at around 12 per cent annually as more services move into the cloud, Sugo says.
And as MNF pushes further into Asia, this will give it the growth runway it is seeking, to help close the gap with its global rivals – Bandwidth in the US, a $US2 billion ($2.9 billion) company, and Gamma in the UK, which is valued at £1 billion ($1.8 billion).
MNF itself is valued in the share market at close to $400m, which is on par per head of population with Bandwidth and Gamma, with their larger home markets.
And as its global rivals push into the European market, MNF is targeting Asia for growth where many of the regional markets, at 12-15 million people, are too small for the global majors.
“But we’re used to smaller markets, so it is manageable for us,” Sugo said.
Industry-wide, the shift away from integrated services digital network (ISDN), which was at the core of the offering of telco industry leaders such as Telstra, across to VoIP has favoured MNF.
“Customers are switching to VoIP solutions and it is clear we are grabbing a share of this,” MNF chief technology officer John Boesen told analysts at the recent briefing.
“Internationally, we are seeing an increase in demand for our services from technology customers both large and small.”
Industry forecaster Gartner expects so-called unified communications as-a-service, which is offered by the likes of MNF, to grow beyond $46 billion over the next four years.
“But we are also seeing growth via our own indicators where we see our global customer retention rates sitting at 156 per cent,” Boesen said. “It’s a booming space with no sign of slowdown or lack of innovation and we are well placed today to capitalise.”