Crowd Mobile Limited (ASX:CM8)

May 09, 2017 | Price: $0.14

Turning a Corner?

Overview: Crowd Mobile Limited (“Crowd Mobile”, “the Company”) is an Australian technology company focused on mobile software and mobile marketing services. Its principal asset is a Question and Answer platform (‘Q&A) and a mobile payments network spanning 160 telco carriers, 54 countries, and 30 languages. Founded in 2005, the Company listed on the ASX in 2015 via a reverse merger with Q Limited. We initiated coverage on Crowd Mobile in February 2015. After completing the $42million acquisition of Track Holdings BV (“Track”) in October 2015, the Company has faced operational and fiscal challenges, which is the subject of this update.

Catalysts: The driver of Crowd Mobile’s share price decline in 2016 has been multi-pronged. The Track business has substantially underperformed, with EBITDA declining by more than 50 percent versus its historical results, whilst uncertainty regarding the Company’s capital structure has further diluted investor confidence. Management has addressed these issues by jettisoning unsustainable parts of the former Track business, which we understand is now operating on a stable base and designed to help grow the Q&A business. Visibility on Crowd Mobile’s capital structure is also being resolved via aggressive principal repayments of its convertible loan facility, with net debt currently $3.4million following placement in April.

Hurdles: Whilst performance of the Track (aka “Subscriptions”) business unit has stabilised, there is no guarantee against further erosion of its earnings base. A lack of growth within the Subscriptions division may challenge Crowd Mobile’s ability to attract an appropriate valuation for its Q&A division, which saw EBITDA more than double in HY17. With management resources to date largely focused on overcoming operational issues within the subscriptions business, the strategic nature of Crowd Mobile’s international mobile payments network remains to be crystallised.

Investment View: Crowd Mobile provides profitable exposure to the market for mobile software and services. Whilst the Company’s performance post-acquisition of Track has been disappointing, recent initiatives to stabilise earnings and the balance sheet deserve attention. The introduction of new institutional shareholders to the register in April at a premium to market is a testament to the strategic nature of Crowd Mobile’s international mobile payments network, and cash generative abilities. With the Company showing early signs of a turnaround, our current advice is to ‘hold’ as we place our valuation ‘under review’ with a view to providing another update in the coming weeks.

THE BULLS AND THE BEARS

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THE BULLS SAY

  • Crowd Mobile is a cash flow positive Company with a highly diversified revenue base supported by 160 telco partners in 54 countries and 30 languages
  • Execution of $5.4million equity placement in April at a premium to market is a testament to management’s recent turnaround initiatives and growth strategy
  • Rapid retirement of borrowings associated with the 2015 Track acquisition is providing greater certainty for Crowd Mobile’s capital structure
  • Whilst the operational performance of the Track acquisition has been disappointing, Crowd Mobile’s Q&A division has continued to witness robust growth
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THE BEARS SAY

  • Despite the Company’s increased scale following its acquisition of Track, high interest and amortisation charges have impacted profitability
  • Poor performance of the Track business under Crowd Mobile’s stewardship may impact confidence in management’s ability to drive sustainable growth from its m-payments network
  • Equity required to finance and support the Track acquisition has resulted in a diluted share count more than 70 percent greater than our projection at the time of the Track acquisition
  • Momentum within the Q&A business may not get the attention it deserves as the subscription business stagnates
Disclaimer

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this report is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

Conflict of Interest Notice

S3 Consortium Pty Ltd does and seeks to do business with companies featured in its reports. As a result, investors should be aware that the S3 Consortium may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making any investment decision. The publishers of this report also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this report.

Publishers Notice

The information contained in this report is current at the finalised date. The information contained in this report is based on sources reasonably considered to be reliable by S3 Consortium Pty Ltd, and available in the public domain. No “insider information” is ever sourced, disclosed or used by S3 Consortium.

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