Alan Kohler: So how is MNF?
Ben Rundle: Probably the key thing that has happened with MNF since we spoke, they announced an acquisition in February, I think that was. A business called Conference Call International. So the business is one providing a conference calling service. They paid about $18 million for the business.
AK: I note that that was 5 times EBITDA, so they got it pretty cheap.
BR: They did get it pretty cheap, which given the fact that MNF is on EBITDA multiple of around 8 times, I think, there was some accretion for that deal, because obviously you are buying earnings a lot cheaper rate than what the valuation of the whole stock. They announced a capital raising to fund that, which was done at $4.50, so stock is still hanging around – above that of level, it is about $4.70 at the moment. In terms of the underlying business, it is still doing very well. I mentioned, I think, last time we spoke that they are doing organic growth of about 25% and there is a decent level of visibility for that organic growth as well which gives us confidence that they will be able to achieve it.
AK: Remind us what they do, and also just in the process of telling us that, tell us if the Conference Call acquisition was a departure for them.
BR: MNF are a provider of voice over internet protocol telecommunication software. So the Conference Call International business use traditional phone lines for their conference calls which, while they are high margin, we think that MNF will be able to drive a higher margin by converting those to Voice over IP. Voice over IP, considering it is done on the internet too, does allow them to add in certain functions, so they will be able to more easily integrate, for example, a video conferencing system to go along with the traditional phone call. Which CCI do at the moment but I think, it is my view that the management of MNF will do that more successfully than the previous CCI owners. So I don’t think it is necessarily departing from their core business, I do think it is an add on where they can use their current software service and apply it to another business and a different vertical that they are still using the same technology but they are able to grow in terms of their earnings and their customers base.
AK: Are they entirely business to business or are they business to consumer as well?
BR: MNF are business to consumer as well. The business to consumer part of their business is probably the less exciting part for the moment, I am sure that you will be aware that a lot of the world is going towards mobile now from the traditional landline use of telephones. So what are MNF doing to combat that, they have recently announced an initiative whereby they will be an MVNO provider, so a mobile virtual network operator. So AmaySim is a good example of a business in the MVNO space, where they are providing their own sim cards but they are using another network. MNF for example can use the Telstra network but the consumer will buy an MNF sim card to put in their phone, MNF will basically buy the rates from Telstra at a wholesale rate and pass it on to the retail customer. So that is one part of their business but the more exciting part of the business is the business to business side of it which is more in the small to medium enterprise space.
AK: Do you think they will do much more growing in the conference call business?
BR: Good question. I don’t know the answer. I think that they will probably see how this goes. I imagine it will grow quite well and if it does then I guess that if they see another opportunity in that space then that will certainly be another avenue for them to pursue, but I don’t know whether that is a strategy. I think they will see how this one goes for the time being.
Article originally appeared 03/04/2017 on The Constant Investor https://theconstantinvestor.com/mnf-group/