Expert analyst Richard Hemming picks winners in the fast growing small caps sector GRAPPLING with fast-moving software and telecommunications company MNF (MyNetFone) requires all your brain cells to be firing. 
The company has been around for 12 years but it was its acquisition of Symbio in   July 2011 which supercharged this company's earnings outlook, making it the largest provider of voice over the internet protocol (VoIP) in Australia, and the fifth largest voice network. VoIP refers to voice, data and other communication services using the internet as opposed to the standard landline.
A more recent acquisition was Telecom New Zealand's international business, giving MNF a global platform.
Its earnings have been skyrocketing because of cost and flexibility advantages on its Australia-wide access. VoIP can save customers between 40 and 80 per cent on communications requirements. But MNF's founder and chief executive Rene Sugo said the company was much more. "We've gone from simply wanting to save money on phone bills to now being about creating voice communications capabilities," he said.
"We don't have to protect our legacy business models. We are the new kid on the block, the challenger, driving disruption." But as with all growth stories, any hiccups are harshly dealt with. Its stock has declined 25 per cent in the past six months as a result of slightly lower than expected earnings guidance for 2016, although growth is still projected to be up 42 per cent against the prior year.
Investors are wary of MNF because it is difficult to understand. The company earns revenues off its network, where it carries voice traffic for big international firms like BT in the UK. Their customers, who terminate calls in Australia, do so on MNF's network.
The interesting part is the sale of its products into this customer base. These include 1800 and 1300 numbers, as well as the ability to port, or change numbers, and the ability to host numbers. When you use Google Maps to find a restaurant and push a button to call that restaurant, that number is hosted and MNF hosts tens of thousands of numbers on behalf of Google.
Mr Sugo is excited about the NBN because it levels the playing field, enabling MNF to deliver services using the NBN to 1000 or more small internet service providers.
Richard Hemming is an independent analyst who edits www.undertheradarreport.com.au,focusing on small cap companies. This column is general information and readers should seek their own investment advice.