MUA reported 26% q-o-q growth in March quarter revenues to A$6.7m, while q-o-q EBITDA increased 33% to A$3.3m to deliver a record EBITDA margin of 50%. The company has reaffirmed its prospectus guidance for NPAT of A$10.1m for the 12 months ending 30 June 2016, but trimmed its revenue and EBITDA guidance by 2.7% and 3.3% respectively. We note that our revenue forecast for the period (12 months to June 2016) is A$27.1m, slightly ahead of guidance for A$25.5m, but our EBITDA forecast of A$12.7m and NPAT forecast for A$10.2m are within 1.2% of guidance. We are not proposing earnings forecast changes at this point. 

MUA has identified several new revenue streams available in its less mature markets, which are categorised as Tier 2 markets. The company plans to launch, at negligible additional cost, a self-service capacity for smaller advertisers and allow end customers to advertise directly on Mitula’s websites. We estimate that a 15% increase in Tier 2 direct CPC revenue (which equates to a 5% increase in total direct CPC revenue) could increase our FY17 EPS by 4.5%, and, if sustained, increase our DCF valuation by 9.4% to A$1.63/share. 

We use a blended valuation of DCF methodology and peer comparison to value MUA. Our DCF valuation uses a WACC 12.0%, a beta of 1.2 and a terminal growth rate of 2.0%, and arrives at a valuation (including in-the-money options) of A$1.49/share (previously A$1.40). The implied valuation, using the forward 12- month EV/EBITDA median of MUA’s listed peer group, is A$1.26/share. This was previously A$1.31/share, but has declined due to share price changes in the peer group. Consequently, our blended valuation is now A$1.38/share (previously A$1.36/share).