MNF Group Limited

Strong Growth in Recurring Revenue:MNF Group Limited (ASX: MNF) is engaged in providing voice, data and cloud-based communication services. During the year ended 30 June 2019, the company reported recurring revenue amounting to $73.6 million, up 89% on prior corresponding period. EBITDA for the period amounted to $27.2 million, up 11% on prior corresponding period. Underlying NPAT-A, i.e., NPAT excluding the impact of one-off acquisition costs and amortisation expense, amounted to $15.9 million, up 13% on prior year. The company also announced a final dividend of 4.0 cents per share, with full year dividend totalling to 6.1 cents per share.


FY19 Results Summary (Source: Company Reports)

Business Highlights: The company reported that global usage margins fell by $4.2 million, as forecasted in 2018.Contribution from the TIAB business was in-line with pre-acquisition forecast predictions. With the launch of new voice network capabilities pending in later FY20, Singapore operation is yet to unfold its performance. Contribution from New Zealand is expected to become more significant in FY20.

FY20 Guidance: EBITDA for FY20 is expected to be in the range of $33.0 million - $36.0 million and will provide mid-point growth of 27% against FY19.Net profit after tax is expected to be in the range of $13.5 million - $15.5 million, with mid-point % change of 27% as compared to FY19. FY20 underlying NPAT-A is expected to witness a mid-point growth of 19%, with the guidance in the range of $18.0 million - $20.0 million. Earnings per share are anticipated to be in the range of 18.4 – 21.1 cents. FY20 Underlying EPS-A is expected to be between 24.5 – 27.2 cents.

 
FY20 Guidance (Source: Company Reports)

Stock Recommendation: The stock of the company generated returns of 46.18% and 23.51% over a period of 1 month and 3 months, respectively. During the year ended 30 June 2019, the company’s gross margin % of revenue stood at 38%, which was higher than FY18 margin of 31%. In FY20, the company expects cash conversion to be more than 80% of EBITDA. In addition, debt to EBITDA ratio for FY 2020 is also expected to be better than 1.6x at the midpoint. Currently, the stock is trading slightly above the average of 52 weeks high and low levels of $5.97 and $3.25, respectively with PE multiple of 39.41x. Hence, considering the above factors and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $4.800, up 0.418% on 29 August 2019.
 

Accent Group Limited

Strong Growth in Digital Sales:Accent Group Limited (ASX: AX1) owns and operates a number of footwear and apparel businesses. The market capitalisation of the company stood at ~A$855.16 million. During the year ended 30 June 2019, the company reported EBITDA amounting to $108.9 million, up 22.5% on prior corresponding period. Net profit after tax for the period amounted to $53.9 million, up 22.5% on prior corresponding period. Accent Group sales amounted to $772.5 million, increasing 14.3% on prior corresponding period.


 Key Financials (Source: Company Reports)

Business Performance: During the year, the company owned retail sales witnessed a growth of 15.8% on prior corresponding period, at $656.2 million. The growth was driven by strong growth of 93% in digital sales and new store rollouts. During the year, the group added 54 new stores to its network and closed 21 stores, growing to a total of 479 stores. Wholesale sales were reported at $116.3 million, up 7% on prior year. Growth in the wholesale segment was supported by strong performance in Vans, CAT and Stance, Merrell and Dr. Martens.

Outlook: For the first 7 weeks of 1HFY20, the company has reported LFL retail sales growth of 2.7%.For the full year, the company expects an increase in profit on the back of low single-digit LFL growth, 40 new stores, new TAF corporate stores and continued strong digital growth. In FY20, cost of doing business is expected to be in line with the previous year.

Stock Recommendation:Over a period of 1 year, the stock has generated returns of 13.26%. As a part of its growth plan, the company is planning to open more than 40 new stores in FY20 looking at the continued strength of new store performance. Growth in digital sales is expected to continue, with a target of 20% digital sales within the next 3 years. In FY19, the company had an EBITDA margin of 14.0%, which is higher than the industry median of 6.8%. Net margin for the year stood at 6.8% as compared to the industry median of 3.4%, which reflects that the company has a better capability to convert its top-line into the bottom-line as compared to the broader industry. As per ASX, the company is having an annual dividend yield of 5.22%, at the current price of A$1.605 per share. Currently, the stock is priced close to its 52-week high level of $1.710 with PE multiple of 15.77x. Hence, in view of above factors and current trading levels, we give a “Hold” recommendation on the stock at the current market price of $1.605 per share, up 1.582% on 29 August 2019.

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