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Valuation
MNDO currently trades at a trailing 12 months P/E of 8.96 and a trailing 12 months EV/EBITDA of 4.47. Its current P/E valuation represents a 27% discount to its five-year average P/E of 12.25. MNDO achieved a 19.3% ROE for the past 12 months and a five-year average ROE of 8.0%.
Financial and Business Risks
MNDO is debt-free with net cash of $17.4 million representing 47% of its current market capitalization of $37.4 million.
MNDO's customers have the option to either unify the various solutions they have into one platform or acquire small service providers and replace MNDO's solutions with their existing billing platforms. MNDO has indicated that they have seen the above happened to some of its customers in 2010 and 2011. This will increase the risk of customer loss, as a significant part of its revenues is derived from maintenance agreements and managed services agreements.
The nature of MNDO's fixed price projects increase the probability of lower margins, if it underestimate the effort and time required for project implementation. Such projects typically include penalties and potential liabilities for damages arising from delays.
The industry is highly competitive and MNDO competes with both established global billing companies such as Amdocs, Comverse and Oracle Corporation as well as with local billing companies.
Business Quality and Capital Allocation
MNDO has a strong business model with recurring revenues and long-term order backlog. It uses two business models to sell its solutions: the license model and the managed services model. In the license model, the customer pays a one-time implementation fee, a one-time license fee and maintenance fees to renew periodically the maintenance agreement at the customer's discretion. In the managed services model, the customer pays a one-time implementation fee, a monthly fee that includes a periodic license, and maintenance and services fees. Of total revenue, 72% and 66% was generated from maintenance and additional services in 2011 and 2010, respectively.
MNDO has a dividend policy of distributing an annual cash dividend, equivalent to its EBITDA plus financial income (expenses) minus taxes on income. It currently sports a dividend yield of 12%. Dividend payments in 2003, 2007, 2008, 2009, 2010 and 2011 were subject to approvals from an Israeli Court due to the fact that it did not have sufficient retained earnings, which court approvals were received. MNDO repurchased 3,165,092 ordinary shares at a total purchase price of $2.8 million in 2009 and 2010.
Disclosure
The author does not have a position in any of the stocks mentioned.
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