MNF Group Limited

MNF Details

Change of Director’s Interest: MNF Group Limited (ASX: MNF) is a developer of cloud-communications software products that deliver communication solutions in Australia and New Zealand. As on 30^th December 2020, the market capitalization of the company stood at ~$380.13 million. The company recently notified that one of its Directors, Mr. Rene Sugo, who holds an indirect interest in the company, has acquired 173,809 unquoted options in the company, pursuant to shareholders’ approval at the 2020 AGM.

FY20 Result Highlights: For FY20, the company reported revenue of $230.9 million in FY20, up 7% on yoy. Further, the company reported NPAT of $11.95 million, up by 20.2% on FY19. The company reported a recurring revenue of $101.5 million during FY20, up by 37% on pcp. It witnessed a growth of 17% in phone numbers and 123% net retention rate of the top 10 customers. MNF paid a total dividend of 6.1 cents per share (fully franked) for FY20, in-line with the previous year.

FY20 Result Highlights (Source: Company Reports)

Outlook: The company experienced increased demand for communications and technology due to COVID-19 pandemic and continues to witness robust demand for its main products from the customers. MNF aims to clear the backlog of the orders in association with its carrier peers in the coming year. Looking ahead, the company aims to achieve 20% YoY organic growth in Australia, New Zealand and Asia-Pacific and it intends to expand its footprint across Asia-Pacific. For FY21, the company expects EBITDA to be in the range of $40.0 million - $43.0 million.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of MNF gave a negative return of 4.34% in the past three months and a negative return of 22.26% in the past six months. The stock is currently trading lower than the average 52-week price band, offering a decent opportunity for accumulation. The stock of MNF has an immediate support level of ~$4.213 and a resistance level of ~$5.068. We have valued the stock using an Enterprise Value to EBITDA based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). For the purpose, we have taken peers like Uniti Group Limited (ASX: UWL), Telstra Corporation Limited (ASX: TLS), Spark New Zealand Limited (ASX: SPK) and others. Considering the current trading levels, decent financial results of FY20, robust business growth indicators, and valuation, we give a ‘Speculative Buy’ rating on the stock at the current market price of $4.380, down by 2.667% on 30^th December 2020.

MNF Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Vocus Group Limited

VOC Details

Announcement of IPO of Vocus, New Zealand: Vocus Group Limited (ASX: VOC) offers specialist fibre and network solutions to corporate, government, small scale businesses, wholesale and residential customers in Australia and New Zealand. As on 30^th December 2020, the market capitalization of the company stood at ~$2.60 billion. VOC recently notified ASX about an error on 21^st December 2020 on the issue of the number of unlisted employee share options and subsequently corrected the total number via an updated Appendix 3G. The company has announced a plan to undertake an IPO of Vocus, New Zealand before the close of FY21. The IPO is expected to provide balance sheet flexibility to VOC and will allow Vocus Network Services to invest in long-run strategic fibre avenues and emerge as a specialist fibre and network solutions provider.

FY20 Results & Business Performance Update: The company reported a statutory revenue of $1.778 million in FY20, down by 6% on FY19. Further, the company reported a statutory EBITDA of $361.31 million, up by 3.5% on FY19. The recurring revenue (RR) fell by 1.1% to $1.75 million in FY20. VOC incurred a loss after tax of $178.16 million for FY20 versus NPAT of $34 million in FY19. The operating free cash flow balance stood at $65.7 million. VOC’s strategy to grow Vocus, NZ and VNS exhibited results with growth in EBITDA of both the segments, while Retail, Australia showed signs of stabilising the business.  

FY20, Earnings Highlights (Source: Company Reports)

Outlook: For FY21, VOC expects underlying EBITDA between $382-$397 million, and capital expenditure to be in the range of $160-$180 million. For retail consumer business, Dodo and iPrimus are projected to return to growth in FY21.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of VOC gave a positive return of 16.29% in the past three months and a positive return of 38.46% in the past six months. The stock of VOC has a support level of ~$3.36 and a resistance level of ~$4.83. We have valued the stock using an EV to EBITDA multiple based illustrative relative valuation method and have arrived at a target price with an upside of high single-digit (in % terms). For the purpose, we have taken peers like Chorus Limited (ASX: CNU), Macquarie Telecom Group Limited (ASX: MAQ), 5G Networks Limited (ASX: 5GN) and others. Considering the FY20 results, EBITDA growth across segments, plans for IPO for Vocus, NZ in FY21, modest outlook, and valuation, we give a ‘Hold’ recommendation on the stock at the current market price of $4.130, down by 1.432% on 30^th December 2020.

VOC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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