MNF Group (ASX: MNF) shares have dropped 8% in early trade after providing profit guidance for FY19 and FY20 following its acquisition.
MNF Group describes itself as a global provider of telecommunications software and services, particularly in the voice over internet protocol (VoIP) space. It has also just launched the telco brand called Pennytel, which is aimed at regional baby boomers.
Why MNF Group is Hurting
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The telecommunications business recently announced the acquisition of Inabox Group Ltd’s (ASX: IAB) wholesale and enablement business for $30.5 million upfront plus an additional $3 million of earn-outs if the business performs.
MNF said that underlying FY18 EBITDA (click here to learn what EBITDA is) was $4.2 million and it was acquired at 7.3x to 8x EBITDA before synergies and savings.
However, as part of the announcement MNF also said that its new combined business is predicted to earn a net profit of $12.8 million in FY19 and between $15 million to $16.5 million in FY20.
This translates to profit per share (EPS) of 17.5 cents in FY19 and 20.4 cents to 22.4 cents in FY20 according to MNF management.
Investors appear to have been hoping for more from MNF’s guidance with the negative reaction today and that the company is only predicting 6% organic growth in FY19. However, some analysts remain upbeat.
“Overall, this is a good result in keeping with my expectation that MNF grows through acquisition and organically,” Ethical Equities‘ Analyst Claude Walker wrote. “While I still think many investors won’t like the modest growth in 2019, I currently intend to continue to hold the stock.”
The company recently revealed that net profit fell 2% in FY18 due to the investment in Pennytel.
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