Crowd Mobile Ltd (CM8)

Company Update

Summary Key Points

Crowd Media is an exciting addition to the CM8 business: CM8’s new division Crowd Media seems to be ramping up well. Crowd Media focuses on digital influencers who are a growing trend in marketing as brands look for innovative ways to connect with audiences in an increasingly complex marketing landscape. In the 19th century brands started to use newspapers and magazines for advertising, from circa 1920 onwards radio advertising became popular, from circa 1950 ago television grew into an important channel and today it’s the internet and social media that dominate. Social media has allowed ordinary people to self-publish in a way that has never been possible before. Research has shown that 92% of customers trust strangers over brands and of all marketers who have used influencer marketing, 81% report success from influencer marketing.

CM8 will enjoy strong tailwinds from new media: The global market for influencer marketing is expected to be greater than US$2.5 billion dollars and is expected to grow further as the channel matures. Up to 70% of millennials use ad blockers to control the display of unwanted adverts on their devices. The proliferation of ad blocking software has resulted in advertisers struggling to connect with the younger demographic. Historically display ads on websites, and social media platforms have been the primary revenue driver for these websites and social media sites. Digital influencers, therefore, offer an alternative way for brands to connect with potential customers in a way that is authentic and is not reliant on display advertising. We believe the trend away from traditional advertising towards personal endorsements will continue to grow which will be a tailwind to CM8’s business.

Recent Insider Selling: The recent insider selling of shares by a key director is an unfortunate turn of events. It is not a good signal to the market when the directors of a small-cap company reduce their holding in their company. However, in our view, the recent share price weakness has been overdone because these actions have no material impact on the business, and we are of the opinion the business is undervalued at these levels.

Valuation and Recommendation

Using a DCF valuation we have valued CM8 at $0.38 a share, and we maintain our BUY Recommendation.

We have upgraded our price target to from $0.35 to $0.38 due to the fact the business has exceeded our performance expectations. The debt load is lower than we forecast and cash flow generation has been robust. However, to be conservative in our outlook, we have assumed modest growth in the Q&A business, flat to negative growth in the Subscription business and have not accounted for any value from the new Crowd Media business. We have also assumed that the current growth rate in the Q&A business moderates from its high levels to a more normalised growth profile.

In our view, CM8 remains undervalued at the current share price and is trading at an attractive 2.8x on a one year forward EV/EBITDA. The recent weakness in the share price triggered by insider selling has been overdone. The half yearly result will be a key indicator of the ongoing performance of the business.


Disclosure Disclaimer

RCAN1446

This Research report expresses the personal view of the Author. The Author of this report made contact with in Crowd Mobile Limited. for assistance with verification of facts, admittance to business sites, access to industry/company information. No inducements have been offered or accepted by the company.

The analyst does not own shares in Crowd Mobile Limited. DJC Advisers and/or Directors do hold shares in Crowd Mobile Limited.

DJ Carmichael Pty Ltd has participated in placements in Crowd Mobile Limited and has acted as the Lead Manager and Corporate Adviser to Crowd Mobile Limited and was paid a fee for these services. DJC, its directors and employees hold 2,000,000 unlisted CM8 options exercisable at $0.30 expiring in December 2018.

DJ Carmichael Pty Ltd is a wholly owned subsidiary of DJ Carmichael Group Pty Ltd ACN 114 921 247. In accordance with Section 949A of the Corporations Act 2001 DJ Carmichael Pty Limited advises this document contains general financial advice only. In preparing this document DJ Carmichael Pty Limited did not take into account the investment objectives, financial situation and particular needs (‘financial circumstances’) of any particular person. Accordingly, before acting on any advice contained in this document, you should assess whether the advice is appropriate in light of your own financial circumstances or contact your DJ Carmichael Pty Limited adviser. DJ Carmichael Pty Limited, its Directors employees and advisers may earn brokerage or commission from any transactions undertaken on your behalf as a result of acting upon this information. DJ Carmichael Pty Limited, its directors and employees advise that they may hold securities, may have an interest in and/or earn brokerage and other benefits or advantages, either directly or indirectly, from client transactions. DJ Carmichael Pty Limited believes that the information herein is accurate, however no warranty of accuracy or reliability is given in relation to any advice or information contained in this publication and no responsibility for any loss or damage whatsoever arising in any way for any representation, act or omission, whether express or implied (including responsibility to any persons by reason of negligence), is accepted by DJ Carmichael Pty Limited or any officer, agent or employee of DJ Carmichael Pty Limited. This message is intended only for the use of the individual or entity to which it is addressed and may contain information that is privileged, confidential and exempt from disclosure under applicable law. If you are not the intended recipient or employee or agent responsible for delivering the message to the intended recipient, you are hereby notified that any dissemination, distribution or copying of this communication and its attachments is strictly prohibited.

Recommendation Definitions

SPECULATIVE BUY – Potential 10% out-performance, but high risk
BUY – Potential 10% or more out-performance
HOLD – Potential 10% underperformance to 10% over performance
SELL – Potential 10% or more underperformance
Period: During the forthcoming 12 months, at any time during that period and not necessarily just at the end of those 12 months.

Stocks included in this report have their expected performance measured relative to the ASX All Ordinaries Index. DJ Carmichael Pty Limited’s recommendation is made on the basis of absolute performance. Recommendations are adjusted accordingly as and when the index changes.

© 2017 No part of this report may be reproduced or distributed in any manner without permission of DJ Carmichael Pty Limited.

Michael Eidne

Director - Research

Michael has over 14 years experience working in financial markets in South Africa, UK and Australia. Prior to joining DJ Carmichael, Michael held research analyst positions at Bell Potter Securities and Blackswan Equities. He also spent several years working as a consultant for various Perth-based resource companies before moving back to the equity markets. Michael is originally from South Africa where he was a portfolio manager at Edge Capital, which is a large South African alternative investment manager. He also worked for a number of years at Investec Asset Management as an investment analyst.

Michael has a MSc in Mineral and Energy Economics from Curtin University and a MBA in Finance from the University of Cape Town.