Cornerstone funding as demand accelerates

Overview: Crowd Mobile Limited ("Crowd Mobile", "the Company") is an Australian technology Company focused on mobile software and services. Its principal assets include product distribution capability via 60 mobile phone carriers in 25 countries, and proprietary content production capabilities focused on consumer advice. Founded in 2005, the Company listed on the ASX via a reverse merger with Q Limited. After entering into a Heads of Agreement to acquire Netherlands-based Track Holdings BV ("Track"), Crowd Mobile has announced FY15 results, expanded its product portfolio, and secured a cornerstone funding facility.

Catalysts: Execution of the Track acquisition is approaching and Crowd Mobile is witnessing strong organic growth. FY15 revenues increased 31 percent whilst utilisation of its ‘message’ services is accelerating. Volumes have increased for five consecutive quarters and last month’s launch of the ‘Crowd Butler’ transaction service represents the first in a series of next-generation consumer products designed to leverage its distribution assets. The Track driven expansion of Crowd Mobile’s distribution base is now supported by a debt offer representing 40 percent of the deal value. Discussions regarding the balance are advanced.

Hurdles: With the quantum of service deliveries across its network increasing at double the pace of FY15 revenue, there is a risk that recent growth is coming at the expense of margin contraction. The pending Track acquisition remains subject to funding and integration risks. With entry barriers to the industry primarily limited to complexities surrounding the procurement of carrier relationships, Crowd Mobile may face increasing competition.

Investment View: Crowd Mobile provides profitable exposure to the market for mobile software and services. We remain attracted to the Company’s income profile and growth potential. With Crowd Mobile’s FY15 results and ‘Crowd Butler’ launch demonstrating the sound capacity to leverage existing distribution assets, finalisation of Track acquisition funding is the major near-term driver. Recent debt initiatives support our existing valuation of $0.63/share. Representing a premium of ~100 percent to recent trade, we maintain our ‘buy’ recommendation.

THE BULLS AND THE BEARS

• Crowd Mobile’s capacity to leverage existing distribution assets appears sound, with service volumes rising for five consecutive quarters, FY15 revenue increasing over 30 percent, and the Company launching a new generation of services via ‘Crowd Butler’
• The pending Track deal significantly enhances Crowd Mobile’s distribution capability expanding the quantity of mobile carrier relationships by 170 percent and national markets by 100 percent
• Funding risks associated with the Track acquisition are being mitigated, with Crowd Mobile procuring a debt facility representing 40 percent of the transaction value
• The Track debt facility supports our existing $0.63/share valuation, which represents a significant premium to recent trade

• With service volumes rising substantially faster than revenues in FY15, there is a risk that less profitable growth is being pursued
• Track is a large acquisition relative to the size of Crowd Mobile’s existing operations and there is no guarantee synergies targeted will materialise
• There is no guarantee the Track acquisition will proceed with more than half of the required funding yet to be secured
• Valuation is contingent on Crowd Mobile delivering a sustained period of earnings growth and successfully financing the Track acquisition utilising debt and hybrid securities.