MNF Group Limited (ASX: MNF) is an integrated telecommunication network and software provider specialized in internet connection, which is happy to announce its agreement with Inabax Group Ltd, IAB (who is the leading supplier of next generation of cloud, information technology and IP telephony services in Australia). The agreement pertains to acquiring IAB’s wholesale and enablement business which will provide services to 500 wholesaler customers throughout Australia.
MNF is supposed to pay a sum of amount between $30.5 and $33.5 million in the form of cash subject to all earn out condition being met, and the final working capital calculation done. As per the normalized FY18 performance, the board is hopeful that this acquisition will be fruitful in order to generate revenues of $55.0m with EBITDA of approximately $4.2m before savings and potential synergies.
The initial payment will be made through an extension of MNF’s existing acquisition facility. The earnout component is expected through free cash flow. It is expected that completion will be done by 30 November 2018 subject to terms and conditions of Inabox shareholders. IAB being a leader in Australian wholesale telecommunication market will definitely bring considerable volume and will scale the business of MNF. Also, IAB being the leading provider of SAAS enabled services will compliment the business of MNF through the transfer of the said business
Summarizing the Acquisition, the purchase price will be above $30.5 million which needs to be paid in cash. A $3.0m earnout is subject to successful commercialization of the procured services and is payable in 3 tranches. First tranche is of $0.5m payable in March 2019. The second tranche consists of $1.65 million payable in the month of June 2019 and the third tranche will be of an amount of $0.85 million which is also payable in June 2019. On completion of target working capital worth $2.0 million which is expected to include $1.5 million in cash, another clause is to have the acquired business debt free.
MNF’s 1-year performance result shows a negative return (of -12.41%) against 240.43% in the past 5 years. If its 10 years’ performance is reviewed, the company has done exceptionally well with a performance report of 7900%. The Company has made a gross profit of A$69.045 million with net profit of A$ 11.859 million. The Company also shows a strong balance sheet. The total asset of the company in FY18 has been $A 125.908 million and total liabilities of A$ 49.675 million have been noted. This shows company has strong capabilities to meet long term obligations. The Company also has capabilities to meet its short-term obligations as well. The company has net cash used for operating activities amounting to A$ 16.296 million as it had used its cash in payments to the supplier and employees, settlement of financial liabilities, income tax and interest paid in FY18. The Company has purchased property, plant and equipment, invested in software development, and purchased intangible asset. Hence, it was a net cash outflow from the investing activities and net cash used for financing activities shows a cash outflow of A$5.696 million. As a result of which, the company has a net cash and cash equivalent of A$18.87 million which is comparatively low against FY 17.
MNF’s share price traded at A$ 5.0 as on 08 October 2018 with the market cap of circa $351.9 million and PE value of 29.54x. Also, if we see the charting pattern of the shares we see that MACD is above the signal line and it seems bullish in nature. The stock has been up 4.2% on 08 October 2018.
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