Crowd Mobile (CM8)

CM8 Company Update

Summary Key Points

  • CM8 has paid off its Vendor Debt: Thanks to a recent injection of equity capital CM8 has repaid its Track Vendor debt thereby further strengthening the balance sheet. This debt was advanced to CM8 as part of the financing package for the Track acquisition. The company paid a $0.58m early termination fee but expects the elimination of the Track debt will result in the saving of $0.8m in interest costs. This debt was due to mature in October 2018.
  • Balance sheet continues to improve: CM8’s net debt position is now at circa $2.8m which is made up of $7.9m of outstanding JGB debt and $5.1m of cash. This is an impressive turnaround in the space of 12 months. At the end of the FY16 financial year CM8 had net debt position of $14.8m. This represents a -81% drop in net debt in just 12 months. CM8 has elected to retire the vendor debt as paying off the JGB loan early, would have attracted early payment penalties and as a result CM8 is continuing to pay down the JGB loan capital at $600k per month. Considering the strong financial performance of the business, the servicing of this loan is well within the free cash flow capability of the business.
  • Lower interest costs will help operational cash flow: CM8 have drawn down a further $3m from JGB to retire the Vendor debt. This facility was part of the original refinancing deal and even though CM8 was paying interest on the undrawn portion it has not used this facility up until now. By drawing down on further JGB cash, CM8 has essentially swapped higher cost bullet payment debt for lower cost debt that is repaid on a principal and interest basis. As CM8 was paying interest on the undrawn portion of the JGB facility, using the facility priced at a 6.5% coupon and 1.5% cash repayment penalty to eliminate the more expensive vendor debt was the smart thing to do. All CM8’s debt will be completely paid off in about 14 months.
  • CM8 expect strong Q4 results: CM8 expects to report its strongest operational quarterly result to date next month which is underpinned by a strong Q&A result.
     

Valuation and Recommendation

Our DCF valuation values CM8 at $0.33 a share and we maintain our BUY Recommendation. We have updated our model to reflect the change in debt but this does not change our price target. In our last update, we had already factored in the paydown of the JGB debt at the end of financial year. The outstanding amounts and maturity were comparable. The Track debt was a bullet payment facility due in 2018 and therefore we assumed only interest payments until then which helped boost short term free cash flow. The JGB loan is a principal and interest facility which will impact near term cashflows but the reduction in free cashflows balances out the improved discount rate hence our price target remains the same. Once CM8 releases its full year results we will review our assumptions. 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 3.9x 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.


Disclosure & Disclaimer

RCAN1414

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.