I recently wrote this article for the Motley Fool about up-and-coming VOIP reseller My Net Fone (ASX:MNF). In that article, I alluded to the fact that it is quite difficult to track the growth of My Net Fone, because of all their acquisitions. What is clear, is that the impressive earnings per share growth has been buoyed by acquisitions, in particular the acquisition of Symbio. If this is the case, we can expect further earnings per share growth resulting from the company’s most recent acquisition spree. However, in recent halves there is no solid evidence of organic growth. That in itself is not necessarily a bad thing, but I think it needs to be taken into consideration when analysing the stock.

As I wrote earlier this month, the main thing that concerns me is that that My Net Fone was scheduled to “issue a consolidated and updated guidance to the market prior to the end of April 2013.”  To his credit, Rene Sugo responded very quickly to an email I sent him, querying why there had been no announcement. He said, “no news is good news” regarding guidance, and that, “we are now very close to the end of year that we feel it is difficult to put out an announcement at this time. This is being considered by the board.” The most important fact for me was that Mr Sugo replied quickly, and addressed the question. To me it is always a red flag when managers ignore questions.

I’m not a buyer of MNF at current prices, but I have had a look at the recent acquisitions.The graph demonstrates the impact of dilution. I expect diluted EPS of about 6c for FY2013.

Recent Acquisitions

Call Stream

- Paid $600,000, announced October 2012
- Annualised EBITDA contribution is $600,000
- It provides 1800 and 1300 numbers… Will be moved to Symbio infrastructure from a competitor (hence the synergy).

Connexus

- Paid $4.75 million, announced November 2012
- Annualized NPBT of $1.6 million.
- Is an ISM that also sells services such as email and web hosting.
- Good potential to sell VOIP products to Connexus customers. EBITA expected to go to $2.1 for FY2014
- $3 million paid for by issuing 4167000 shares at 72c and $1.75million of free cash flow (1H2013).

GoTalk Wholesale

- Paid $1.4 million December 2012

- Long term competitor to Symbio, and will take about 24 Months to Migrate all customers completely to Symbio Network.
- Hopes to add EBITDA of $1.3-$1.6 million in FY14 and $2 million beyond FY2015.
- Restructure expected to cost $0.5 million over 12 months.
- Paid for by way of a $2 million share placement at 94c each (That is, 2,127,660 shares added for 2H2013).

 

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The Author has no direct holding in MNF, but does have an indirect interest through a managed fund.

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