In our view, Monitise’s H1 17 results demonstrate the benefits of management’s ongoing transformation programme. EBITDA profitability was sustained, and accompanied by cash outflow more than halving vs H1 16A. With gross cash at £27.3m, the group’s financial position remains strong. Initial FINkit sales are under “active discussion” and ongoing regulatory initiatives (CMA, PSD2) give further grounds for optimism in the outlook.
Monitise reported a second consecutive six-month period of positive EBITDA. A 33% reduction in headcount versus H1 16A was a key driver of a 56% YoY decline in opex. Cash outflow before financing more than halved to £14.2m. Underlying performance was notably stronger, with outflows impacted by a £6.8m settlement charge from onerous contracts and £1.5m from a non-recurring reduction in deferred income during the period.
Monitise closed the period with a gross cash balance of £27.3m (£26.2m net), representing 44% of the current market capitalisation. With our expectation of improved margins, lower capex and significantly reduced onerous contract charges in FY 17E, our model suggests that the H1 17A cash position will be sufficient to fund the company through to cash flow breakeven.
Four of Monitise’s six business units have been successfully restructured over the past eighteen months. The other units, Big Radical (formerly Create) and the North American business, have both seen new management teams appointed. With these units generating 29% of total turnover (H1 17A), there is further scope for group financials to benefit from restructuring.
FINkit is Monitise’s cloud-based development platform and toolkit designed specifically for banks and financial services clients. Initial sales are under “active discussion”. The EU’s Payment Services Directive (PSD2) and CMA’s Open Banking Initiative are stimulating regulatory-driven interest in the FINkit platform.
We leave key forecasts unchanged following the results. Nevertheless, we see a number of encouraging signs for the business. The ongoing restructuring programme is bearing fruit, with the business now on a more stable financial footing. FINkit remains the key opportunity and challenge for the group, with sales experiencing longer lead-times than we originally anticipated. The robust H1 performance has essentially bought Monitise more time to achieve FINkit sales