Shares of promising junior telecommunications company, My Net Fone Limited (ASX: MNF), have flown 12% higher today following a market sensitive announcement this morning.
In an announcement to the ASX, My Net Fone said it will purchase the global wholesale voice business of Telecom New Zealand International (TNZI) from Spark New Zealand Limited (ASX: SPK) for NZ$22.4 million.
Since listing on the ASX in 2006, My Net Fone has grown into Australia's largest provider of hosted voice and data communications services for businesses, enterprise and residential users. Also, through its subsidiary, Symbio, it owns and operates Australia's largest VoIP (Voice over Internet Protocol) network, providing wholesale carrier services to local and international customers. VoIP is similar to a regular telephone but is internet-based (and much cheaper!).
As the owner of the underlying network My Net Fone has grown earnings exponentially in recent years because once a network is in place, the cost of additional services is very minimal. Symbio currently provides 3.2 billion minutes of voice calls per annum.
The latest acquisition of TNZI complements the company's existing services and provide a step-change for revenue and profit growth.
With operations in six countries and carrying some 2.8 billion minutes annually, My Net Fone anticipates the TNZI acquisition will generate revenues in the range of $90 million to $100 million in financial year 2016. Earnings before interest, tax, depreciation and amortisation from TNZI are expected to be $3.5 million before potential synergies and savings.
To put that in perspective, during its most recent half-year My Net Fone generated $3.1 million in profit on revenues of just $30.3 million.
A low-cost bank facility of $25 million will be used to cover the purchase price, with a slight additional capital buffer.
Management acknowledged many investors liked the fact My Net Fone was debt free but CEO Rene Sugo said, "The board is of the opinion that a modest amount of debt with a healthy EBITDA cover is sensible leverage to allow the company to grow quickly while limiting dilution and increasing shareholder value."
"We understand that a lot of shareholders appreciate the debt-free status that My Net Fone has enjoyed in the past, and the current plan is to pay down the debt with the proceeds generated by the acquisition itself within 5 years," Mr Sugo said.
Commenting on the operational benefits of TNZI, Mr Sugo said the acquisition provided a "huge step up" for My Net Fone and transforms the $200 million company "into a significant voice player in the global market."
He added, "It would have taken the company many, many years and a far greater investment to build the team, capabilities, customer base and network reach that this great deal brings us."
Is My Net Fone a bargain?
There's been a lot of capital market activity within the Australian telecommunications industry in recent times. Vocus Communications Limited's (ASX: VOC) purchase of Amcom Telecommunications Limited (ASX: AMM) and TPG Telecom Ltd's (ASX: TPM) $1.4 billion acquisition of iiNet Limited (ASX: IIN) are some of the most recent examples.
My Net Fone shares have climbed approximately 3,800% in the past five years but, looking ahead, there could still be significant long-term value in the shares at today's prices.
Indeed the company is expected to grow earnings and dividends per share at a rapid clip over the next three years. Currently trading at 27 times 2015 earnings per share (before the benefits of today's acquisition are factored in), My Net Fone shares do not appear overly expensive.
