Forget The Name, My Net Fone Has The Goods
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In FY14, MyNetFone racked up its fourth consecutive record profit, with revenue up 28% to $59.3 million, and net profit up 40% to $5.8 million. Earnings per share (EPS) climbed 33% to 9.26 cents per share, while the fully franked dividend increased by 29%, to 4.5 cents a share.
It has probably got the worst name in the All Ordinaries index, but don’t let that put you off specialist telecommunication services provider My Net Fone Limited (MNF). The Voice-over-Internet-Protocol (VoIP) voice and data communications services company has been an excellent performer on the stock market, posting a five-year return of 109.6% a year (including dividends). Since the start of 2012 the share price has run from 17 cents to $2.82.
My Net Fone is Australia’s leading provider of internet communications services for residential, business and enterprise users, with its own carrier-grade network across Australia. The company developed out of Symbio Networks, which built VoIP-related equipment and software for internet service providers and other companies in the telecommunications industry. CEO Rene Sugo and his business partner felt that Symbio's customers were not implementing the technology as in a customer-friendly form, so they created their own retail brand, My Net Fone.
They built the V100 ATA (analogue telephone adaptor), which a customer could simply connect to the mains and to their router, then plug in a normal phone handset and then start making calls. Because what was normally a timed STD call was charged as a flat-rate local call, the product took off – both in terms of sales and plaudits from the IT media – and its success was a major driver of My Net Fone’s initial public offering in May 2006.
In 2008 MyNetFone made a big push into the business market with the launch of its virtual PBX service. The product was slow to take off – it took months to sign a customer. But it has prospered because, being a cloud-based service, it requires very little in capital expenditure apart from the handsets, and is much cheaper than Telstra. MyNetFone invested heavily in phone-number portability, knowing that businesses would need that if they were to move to VoIP.
MyNetFone has grown both organically and through a succession of acquisitions in recent years. The company picked up CallStream for $600,000 and Connexus for $4.75 million in November 2012, followed by GoTalk in December 2012 for $1.4 million. It acquired the assets of PennyTel in October 2013 after the company went into liquidation.
In 2011 MNF made its biggest jump by buying Symbio Networks, now a wholly owned subsidiary. At one stroke this gave MNF of only six fully interconnected infrastructure based voice network operators in Australia. Symbio carries 3 billion billed minutes a year, and is Australia's fourth-largest fixed voice network (behind Telstra, Optus and AAPT), accounting for 10% of total landline voice communications in Australia. 146 service providers run on the network. MyNetFone says its systems are already set up to handle growth to 6 billion minutes annually, and the company is looking towards growth to 9 and then 12 billion.
In 2012 My Net Fone won a tender put out by the Tasmanian government to provide internet telephony services, and the company expects in time to emulate that deal with other governments. The company is diversifying into additional business communications related services (video calls, SMS, email, as well as collaboration and other cloud-based services), and further out, Sugo holds out the possibility of international expansion into Asian countries as their telecommunications markets are deregulated and broadband becomes more widely available.
In July 2014, MNF picked up the iBoss billing system, after the collapse of its owner. MyNetFone describes iBoss as a sophisticated software platform that provides the essential link between wholesale telecommunications operators and their suppliers, for example Telstra and Optus.
The company’s brand portfolio now comprises My Net Fone (hosted communications), Symbio Networks (wholesale carriage and VoIP managed services) CallStream (cloud-based business 13, 1300 and 1800 numbers), Connexus (business internet), PennyTel (budget residential VoIP, mobile and broadband services) and iBoss (wholesale aggregation and billing platform.) Together, these generate a high-margin recurring revenue stream.
In FY14, MyNetFone racked up its fourth consecutive record profit, with revenue up 28% to $59.3 million, and net profit up 40% to $5.8 million. Earnings per share (EPS) climbed 33% to 9.26 cents per share, while the fully franked dividend increased by 29%, to 4.5 cents a share. The company ended the year with its strongest balance-sheet position yet, with $7.4 million in cash and no bank debt.
As My Net Fone wins more business with local governments, universities, schools and state government departments around Australia, it builds more leverage into the prime asset – the national voice network, which also carries the wholesale voice and managed-service business (Symbio Networks) and the MyNetFone retail traffic. The company has grown very strongly, but there is still a large market of organisations that want to lower their communications-related costs.
Analysts are looking for further earnings growth, of about 24%, for MNF in FY15, putting it on a prospective price/earnings (P/E) ratio of 25.4 times earnings. Management has indicated an organic underlying growth rate of 10%. With return on assets running at about 28% and return on equity at about 58%, this is still a growth stock, that is a lot cheaper than the levels above $3.80 that prevailed late in 2014.
James was founding editor of Shares magazine, and oversaw one of the most successful magazine launches in Australia. He has also written for BRW, Personal Investor, The Age and Management Today, and was subsequently personal investment editor at The Australian and editor of financial website, investorweb.com.au