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Kape has today announced the successful, heavily oversubscribed raise of $115.5m from a mix of new and existing shareholders. The raise has been undertaken at a share price of 150p/share representing an 2% discount to prior close, and exceeds the initially targeted raise of $100m. $72m of the proceeds will be utilised to buy-out issued and eliminate deferred shares due to legacy founders of Private Internet Access (‘PIA’) which was acquired in Nov’19. The remaining $43.5m will be held for acquisition and R&D investment. We note that PIA’s executive team (CEO, CTO and COO) who joined Kape alongside the acquisition last year are all remaining in the business, with PIA’s founders only nominally involved post acquisition. The benefits to Kape are three-fold: 1) the raise increases liquidity within the shareholder register; 2) Kape is acquiring founder shares at 145p/share, an 3% discount to the price of the raise; and 3) the beneficial tax structure created at acquisition shifts to Kape shareholders (as opposed to PIA founders) creating a c.$50m cash benefit to Kape recognised linearly over 15 years. Updated forecasts for FY’21E generate FCF of $28.2m, representing a 7% yield.
Companies: Kape Technologies Plc
Tremor has announced in today’s trading update that its platform has continued to gather further momentum since H1 20 results on 22 September, and it now expects FY20 revenue and EBITDA to be in the range of $340-360m for revenue and $30-36m for EBITDA. This leads us to upgrade our FY20 revenue forecasts by +6% to $350m from $330m, and upgrade our FY20 EBITDA by +32% to $33m from $25m at an incremental margin of 40%. This reflects that Tremor’s platform benefits from strong operational gearing that translates to EFCF, and we increase our FY20 net cash to $79m from $71m. This strengthening momentum for Tremor’s differentiated platform reflects that it is capitalising upon a rebound and shift in advertising spend through the success of the initiatives it launched in 2019 and the successful integration of Unruly, and we explain these factors in more depth from p9 of our 22 September report. Today’s announcement also marks the second upgrade to our Tremor forecasts since COVID-19 impacted the advertising market and Tremor in Q2, and this reflects that Tremor has adopted a prudent approach to its guidance. Applying a similar approach to our estimates, we conservatively do not change our FY21 forecasts, and this means that we continue to forecast FY21 organic revenue growth to $420m or +20% YoY, with organic EBITDA growth to $55m or +67% YoY. This conservative, strong FY21 organic growth means that Tremor looks substantially undervalued on 7x FY20 EV/EBITDA or 5x NTM, and a NTM EFCF yield of 6%; vs peers on 13-19x EV/EBITDA with NTM EBITDA growth of 18-47%, and EFCF yields of 1-2%.
Companies: Tremor International Ltd.
Kape’s interims saw Group revenues rise +97% y/y to $59.0m (organic: +12%), driven by a 245% increase in Digital Privacy sales (+47% organic). Organic growth was stronger than anticipated in Digital Privacy, above N1Se estimates of 30%-40% as a function of strong end-user demand. CyberGhost (VPN) and Intego (end-point protection) subscriber bases grew +10% and +11% h/h respectively. The main takeaway is Kape’s inflection to positive FCF ($6.7m; H1’19: -$1.8m) alongside increased cash investment into customer acquisition (+60% y/y to $29m). We see meaningful cash flow margins (>25%) being delivered in the next 1-2 years, with £31m of FCF forecast for FY’21E generating a 6.3% FCF yield (peers offer 3.5%-4%). Putting Kape on a 4% FCF yield implies an intrinsic value of >£3/share.
Kape has enjoyed a good first half of 2020 both in terms of operational progress and financial performance. Revenues increased 97% to $59.0 million (H1 2019: $29.9 million), a 12% increase on a pro-forma basis. The interim results reflect the Group’s continuing success in integrating its Private Internet Access (PIA) acquisition while growing subscriber numbers – now just shy of 2.4m in total - across the businesses. The focus on customer lifetime value is evident in the marketing spend and investment in new product development. Kape remains on track to meet previous guidance for the full year and expects to deliver synergies from the PIA deal at the top end of the mooted range. We believe that the Group has good revenue visibility and it continues to maintain a high level of user retention at 80%. We make no changes to estimates other than to reflect a higher amortisation charge. In our view, the interim results show that Kape continues to display the drive and capacity to meet the growing needs of consumers for digital privacy and security products in a rapidly evolving marketplace.
Centaur’s Q3 shows high business resilience in the context of a challenging market backdrop. Ex-MarketMakers (“MM”; closed Aug’20), revenue decline slowed in Q3 to -16% y/y (Q2: -24%) whilst net cash actually rose (Q3: £9.3m; Q2: £8.4m) supported by exceptional cash management. Across Centaur’s portfolio, events and recruitment advertising saw continued CV19 impact, yet premium content performed well and the e-learning business saw continued strong demand. The Group also anticipate The Lawyer to achieve an FY’20E renewal rate of 105%. The Group is reinstating FY’20E guidance, with sales of >£32m from continuing ops (ex MM), and an adj EBITDA margin of c.10% (FY’19: 9%). Given improved visibility over FY’20 we also reinstate forecasts to the year end, yet longer term forecasting for events/ advertising streams remains challenging given fluidity in the macro backdrop. 0.75x EV/FY’20E sales (ex MM) looks inconsistent with growing premium content and elearning sales which make-up >50% of forecast FY’20E revenues.
Companies: Centaur Media plc
Tremor has reported a strong set of FY19 results and announced a prudent $10m buyback. The results are in line with January’s trading update, and demonstrate strong growth in Digital Video and Connected TV (CTV) advertising. Tremor has also seen a solid start to FY20, but COVID-19 could markedly affect a number of its clients. The management and board highlight that it is too early to fully assess the impact of COVID-19 on Tremor’s FY20 outlook, and we consequently leave our FY20 estimates broadly unchanged at this point. In this report we also explain Tremor’s investment case in depth, and highlight that Tremor is excellently positioned to capitalise on the major growth in Video and CTV advertising, and can see further upside from M&A and the resolution of the Uber case.
CentralNic has announced the conditional US$36m asset-based acquisition (payable in cash on completion) of one of Team Internet’s closest competitors, Codewise, a domain monetisation business based in Poland. Based on the year to 30 June 2020, the deal values Codewise at 0.60x historical sales (US$60.3m) and 4.9x adjusted EBITDA (US$7.4m). The deal is being funded by way of a share placing, with CentralNic having placed 40m shares (21% of the equity) at 75p per share (a 6% discount to the 10 September closing price), raising gross proceeds of £30m. Assuming a year end completion date, we estimate that the deal will be materially (c 18%) EPS enhancing in FY21. The acquisition is highly complementary to the successful Team Internet acquisition, completed in December 2019, building CentralNic’s technology base and market share in domain monetisation, diversifying its client base and strengthening the group’s development capability and senior management team.
Companies: CentralNic Group Plc
Full year results were in line with the July trading update, a little ahead of our published estimates, with revenues up 12% and adjusted operating profit up 18%. Data Products (one-third of group revenue) performed particularly well, with underlying revenues up 21% and operating margin up 70bp to 35.0%. A strong balance sheet (net cash of £35.3m) supports stepped-up investment in both technology and in panel, underpinning the ambitious targets set out for the three remaining years of management’s five-year plan. The valuation remains at the high end of the range of peers.
Companies: YouGov plc
Pearson’s 9-month trading update highlighted that the rising digital activities were unable to offset the test centre and school closures linked to COVID-19. The group’s solid financial position remains a positive point to retain.
We are likely to raise our forecasts considering our below average expectations but expect to reiterate our cautious view on the stock.
Companies: Pearson PLC
Mirada plc* (MIRA.L, 65p/£5.8m)
Companies: Mirada PLC
We report on the performance of our momentum style screen since the last refresh three months ago and present the 25 new constituents. The screen underperformed small-cap and microcap indices modestly, though our previous focus stocks did significantly better. While momentum (as we express it) has outperformed smallcap significantly since inception of the screen in July 2016, this has arisen in shorter periods and appears to only coincide with a steadily rising small-cap index. We therefore consider this style screen to have limited predictive capability. We highlight seven stocks, which we think are interesting.
Companies: BMY CKT KEYS LGT MACF VER WYG
We are introducing our Best Ideas for 2019 and also review the performance of last year’s picks. We suggest ten solidly financed stocks with good business dynamics that ought to be considered for core portfolio holdings and six UK domestically focused stocks that our analysts believe should perform strongly in the event that uncertainties unwind. We also introduce a new style of research from N+1 Singer which presents a Company’s dynamics and metrics in a clear and concise manner and concentrates on the pivotal issues affecting that Company and an investment decision.
Companies: BCA CLIN CLG CBP DNLM EAH STU FCRM FUTR GTLY INS GLE NICL SDL SPR TRI
The two leading adtech businesses on the AIM market – Taptica and RhythmOne – have come together, combining their programmatic advertising platforms to create a major player in the global video advertising market. Following completion of the deal, we now release preliminary forecasts for the combined entity. Taptica’s management has only just received access to a very complex and disparate organisation in RhythmOne, and there will doubtless be an evolution of expectations as understanding and integration proceeds. RhythmOne trading for the YE March 2019 was below expectation, but under Taptica’s management the combination nevertheless represents an excellent opportunity going forward.
Vela Technologies is an investing company focused on early stage and preIPO long-term disruptive technology investments. There are currently 12 investments in the portfolio which either have developed ways of utilising technology or developing technology with a view to disrupting the businesses or sector in which they operate.
Companies: Vela Technologies plc
De La Rue remains challenged. New management has to navigate a difficult Currency market and consequent concern over its finances. The swift response in terms of a turnaround programme is a positive start, accelerating cost cutting initiatives and cash management measures, including suspension of the dividend. Restoring stability and rebuilding confidence in the investment case is likely to take some time.
Companies: DLAR DELRF DL1C