A strong recovery over the second half of March has meant that shares of ASX telecommunications company MNF Group Ltd (ASX: MNF) have held up surprisingly well during the coronavirus pandemic.
Shareholders may have feared the worst after the MNF share price plunged over 40% to a new 52-week low of $2.77 in the first half of March. But MNF shares bounced back just as quickly after the company reaffirmed its FY20 earnings before interest, tax, depreciation and amortisation (EBITDA) guidance of between $36 million and $39 million. This would represent an uplift of between 32% and 43% over its FY19 numbers.
The recent rally in its share price means that since the beginning of March, MNF has easily outperformed bigger telecom industry names like Telstra Corporation Ltd (ASX: TLS), Vocus Group Ltd (ASX: VOC) and TPG Telecom Ltd (ASX: TPM).
But whereas these old-school telcos provide the infrastructure that helps keep us all connected, MNF positions itself as more of a new generation, innovative technology company. And what makes it so exciting for investors – and why its share price has outperformed those of the bigger players in the telco industry – is that many of its services directly address the unique demands created out of the coronavirus pandemic.
MNF uses Voice over Internet Protocol (or VoIP) technology, which is a way to convert analog audio signals into digital data that can be transmitted over the internet. This tech underpins many of the communication applications and software required by businesses in order to work remotely. MNF owns a number of different brands that help facilitate virtual meetings, teleconferencing, online collaboration and digital data transfers.
In these unprecedented times, when a significant portion of the nation's (and the world's) workforce has transitioned to working remotely from home, MNF has seen a surge in demand for its core products. At the same time as it reaffirmed its FY20 EBITDA guidance, MNF announced that usage volumes were up in all 3 of its operating segments: Global Wholesale, Domestic Wholesale and Direct.
Should you invest in MNF shares?
Even after the strong rebound in its share price over the second half of March, at its current price of $4.49 MNF is still trading at a significant discount to the 52-week high price of $5.48 that it hit last September. And although the current economic climate is incredibly unpredictable, the surge in demand shows that MNF is onboarding larger numbers of new customers as a result of the pandemic.
As with just about all businesses, a potential downturn in domestic and international economies will undoubtedly hurt MNF, especially if its population of corporate customers dries up. In these highly uncertain times, it is even harder than usual to make any definitive predictions about how a company's growth prospects might pan out over the near-to-mid-term.
However, the remote working conditions currently being imposed by the government have undoubtedly increased MNF's brand awareness and market penetration. And it offers a pretty 'sticky' product – as workers return to their offices, usage volumes for teleconferencing and virtual meetings might decline, but the underlying demand should still persist.
While I'm not a futurist, it's also entirely conceivable that the coronavirus crisis might permanently change the way many of us work. More people might find themselves enjoying the flexibility of working remotely and telecommuting could become the new normal. This may mean that MNF's usage volumes may not actually decline as much as initially expected post-pandemic.
With MNF, I think the upside potential outweighs the downside risk. I would at least be putting it on my watchlist as a company that could continue to outperform even as the coronavirus crisis drags on.
