Crowd Mobile (CM8)

Company Update

CM8’s recent capital raise has strengthened the balance sheet and removed a key headwind. This leaves the business well placed for FY18.

Summary Key Points

CM8’s cashflow generation remains robust: CM8 recently released its FY17 Q3 results and recorded a strong quarter with revenues of $10.8m and underlying $3.0m in EBITDA. The underlying business is strongly cash flow generative with impressive growth in the Q&A business contributing. Several costs associated with its purchase of its subscription business and the accompanying funding package are starting to wash out of the business which will help underpin future free cash flow generation.

The balance sheet is now much stronger: CM8 recently completed a placement of $5.4m which has resulted in the net debt position falling to circa $3.4m. The high debt load has been a headwind for the company as investors have been concerned that the company was carrying too much debt. In our view the CM8 management team have done a good job of balancing the rapid paydown of debt and the working capital demands of the business.

CM8 expanding its business model into the new area of Digital Influencers: The company has already achieved some early success in that it has secured its first campaign Insertion Order for its new created Digital Influencer Agency Crowd Media. CM8 is leveraging its successful and cashflow generative business model into new emerging areas. Its global payments network will help facilitate these moves and allow for rapid monetisation of new strategies. CM8 as an established business therefore has an advantage over other emerging players trying to enter these markets.

Financial Forecasts: CM8 has largely performed to our expectations from an operational perspective but paying down the principle and interest from operational cashflow has stressed the business by constraining the working capital for customer acquisition. A key constraint on the business is that CM8 has a relatively long working capital cycle and therefore, at the end of the half year CM8 had over $10m in trade receivables. However, this long cycle ties up a lot of free cash for a long time and impacts CM8’s ability to spend more money on marketing. Historically CM8 have a 3.5x uplift on marketing to revenue spend and devoting more cash resources to marketing will lead to higher revenue growth going forward.

Valuation and Recommendation

Our DCF valuation values CM8 at $0.33 a share and we maintain our BUY Recommendation. We have discounted our long term DCF at a WACC of 10.49% which is largely due to the high level of expensive debt to equity. Once the debt is reduced next in FY18 we believe the cost of capital will fall. In the past, we have defined an earnings positive peer group that currently trade at a FY17 13.4x EV/EBITDA. CM8 is trading on 3.6x FY17 EV/EBITDA which makes it substantially undervalued relative to its peers. Thanks to improving earnings visibility, exposure to the mobile commerce thematic and solid growth prospects, CM8 is compelling at these levels. CM8 trades at an attractive less than 1x FY17 revenue and low EV/EBITDA multiple.


Disclosure and Disclaimer

RCAN1396

This Research report, accurately expresses the personal view of the Author. DJ Carmichael Pty Limited, members of the Research Team; including authors of this report, 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 in stocks mentioned in this report.

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.

This Research report, accurately expresses the personal view of the Author. All the information utilised in this report is accurate and current at the date stated on this report. 

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 Advisor to Crowd Mobile Limited and was paid a fee for these services. DJC, its directors and employees hold 1,000,000 unlisted CM8 options exercisable at $0.25 expiring in April 2018; 6,000,000 unlisted CM8 options exercisable at $0.30 expiring in December 2018; and 1,515,023 unlisted CM8 options exercisable at $0.27 expiring in August 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 D J 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 advice 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
ACCUMULATE – Potential 10% or more out-performance, buy on share price weakness
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.

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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.