Download Report

RESEARCH
INFORMATION MEMORANDUM
Date:
11 June 2015
Crowd Mobile (CM8)
Company Information
ASX Code
Last Price ($)
12 month share low
12 month share high
Shares on Issue (m)
Market Capitalisation ($m)
Daily Volume
CM8
$0.22
$0.08
$0.23
85,197,933
18,317,556
247,975
CM8 to Acquire Track Concepts to Create an Integrated M-Payments
and Entertainment Business.
Summary Key Points
Bloomberg, DJC Research
Business Description
Crowd Mobile Ltd. operates as a holding company
which engages in developing of information
services for users of mobile phones and tablet
devices in various countries. The company was
founded on June 26, 1998 and is headquartered in
Sydney, Australia.
Factset, DJC Research
Directors
Theo Hnarakis
Domenic Carosa
Hans de Back
N.E. Chairman
CEO/Director
N.E. Director
Major Shareholders
DSAH Holdings Pty Ltd
Dominet Digital Corp
Dominet Digital Investments
DSAH Holdings
Jiwa Nadan
17.93%
12.61%
6.91%
3.77%
3.68%
Performance
0.25
Crowd Mobile Ltd
Price ($)
0.2
CM8 to acquire Track Concepts: CM8 has signed a binding heads of agreement to Acquire
Track Concepts which is a Netherlands based mobile technology company. CM8 intends to
acquire 100% of Track Concepts for AUD26.7m (€18.7m), Net Tangible Assets (NTA) of circa
AUD$5m (€3.5m) as well as an earn-out based on future performance to a maximum of
AUD$6.7m (€4.7m). This transaction values Track at circa 2.5X CY2015 EBITDA. Track
recorded revenue of AUD$24.5m (€17.2m) and EBITDA of AUD$12.9m (€9m) in CY2014.
CM8 combined with Track is expected to record revenue of circa AUD$40m in FY2016.
Track Concepts is a Private Company in Mobile Entertainment Space: Track Concepts
owns specialist technologies in m-payments and a customer acquisition platform, with a global
content distribution network operating in 38 countries within Europe, Central/Latin America,
Asia-Pacific and Africa. Track concepts has produced a positive EBITDA over the last 5 years
with EBITDA margins of 40% to 53% as well achieving 47% CAGR in revenue growth from
2010 to 2014.
CM8 and Track Concepts will be an Integrated M-Payments and Entertainment
Business: The combined business will be a global business with revenue generating centres
in 50 countries as well extending CM8 reach to over 160 telecommunication providers across
the globe. The transaction will increase CM8’s product offering and give it a platform to
accelerate the growth of its micro job platform while enjoying the benefits of Track’s network
and mobile entertainment products. Track has mature technology platform that is used to
acquire, retain and manage customers efficiently. Its Global Content Distribution provides
mobile content, entertainment and Apps to millions of consumers worldwide.
0.15
Funding: CM8 intend to fund the transaction through a combination of debt, equity and a
convertible note.
0.1
0.05
0
23/01/2015
23/02/2015
23/03/2015
Market Volume
23/04/2015
23/05/2015
Close Price
Source: Iress
Analyst Details
Michael Eidne
+618 9263 5213
[email protected]
Post-Merger Financial Metrics: The transaction is earnings accretive for CM8 due to the fact
Track is a revenue generating profitable business. CM8 is acquiring Track on a circa 2.5x
multiple of the forecast CY2015 EBITDA. This is a very competitive price which values CM8
on a post-merger EV of $54.7m. On a post-merger basis CM8 will be trading on a pro forma
FY2015 EV/EBITDA multiple of circa 3.4x. As per table 1 this makes CM8 substantially
undervalued relative to its peers in the mobile technology and entertainment space.
Peer Analysis
Name
Moko Social Media
Mobile Embrace
Freelancer
migme
Crowd Mobile
Code
MKB
MBE
FLN
MIG
CM8
EV
76.6m
79.3m
511m
246m
54.7m
FY15F*
EV/Sales (x) EV/EBITDA (x)
8.6
-4.7
2.5
18.3
14.1
46.7
20.7
-15.4
1.4
3.4
* Pro Forma Track and CM8 FY15
Figure 1: CM8 key metrics relative to its peers.
Source DJC, Factset
D J Carmichael Pty Limited ABN 26 003 058 857 AFSL 232571
Telephone: 08 9263 5200 Facsimile: 08 9263 5283 Email: [email protected] Webpage: http://www.djcarmichael.com.au
RESEARCH
INFORMATION MEMORANDUM
Crowd Mobile Profile
Global mobile entertainment business: CM8 is a mobile based entertainment business and
crowd sourced micro job business with a global footprint. CM8 operates mainly in Europe,
Australia and New Zealand. It is also expanding into Africa and the Americas as well as parts
of Asia. More and more people across the world are using mobile and smartphones as they
become wealthier. In developing countries the proliferation of cheap smartphones running
Android has also helped to drive the growth of smartphones penetration across developing
countries. CM8 is a question and subject matter expert answer platform with a number of
different brands on its platform that cater to different market segments.
Figure 2: CM8’s suite of mobile applications
Source: CM8
Micro job platform: CM8 operates a crowd sourced micro-job system where the platform
connects customers with a trained crowd sourced researcher who answers a question.
Answers to questions are not automatically generated but a real person is allocated the
question which they then proceed to answer. The user pays a fee to have the question
answered which is then shared between the carrier/telco, Apple or Google, the researcher
and CM8. The fee is either collect via a Telecoms company (ie. Telstra, Optus etc) or via
iTunes or Google Play depending on the platform the user is on.
Some 3.4 million questions were answered in FY14 by 500 hundred trained researchers and
this should increase as CM8 rolls out apps that cater for different markets.
Figure 3: Examples of CM8’s questions.
2
Source: CM8
11 June 2015
RESEARCH
INFORMATION MEMORANDUM
Key Investment Points
CM8 to acquire Track Concepts: CM8 has signed a binding heads of agreement to Acquire
Track Concepts which is a Netherlands based mobile technology company. CM8 intends to
acquire 100% of Track Concepts for AUD26.7m (€18.7m), Net Tangible Assets (NTA) of circa
AUD$5m (€3.5m) as well as an earn-out based on future performance to a maximum of
AUD$6.7m (€4.7m). This transaction values Track at circa 2.5X CY2015 EBITDA. Track
recorded revenue of AUD$24.5m (€17.2m) and EBITDA of AUD$12.9m (€9m) in CY2014.
CM8 combined with Track is expected to record revenue of circa AUD$40m.
Figure 4: Track Concepts financial performance and growth
Source: CM8
Track Concepts is a Private Company in the Mobile Entertainment Space: Track
Concepts owns specialist technologies in m-payments and a customer acquisition platform,
with a global content distribution network operating in 38 countries within Europe,
Central/Latin America, Asia-Pacific and Africa. Track concepts has produced a positive
EBITDA over the last 5 years with EBITDA margins of 40% to 53% as well achieving 47%
CAGR in revenue growth from 2010 to 2014.
Figure 5: Track Concepts business model
3
Source: CM8
11 June 2015
RESEARCH
INFORMATION MEMORANDUM
CM8 and Track Concepts will be an Integrated M-Payments and Entertainment
Business: The combined business will be a global business with revenue generating centres
in 50 countries as well extending CM8 reach to over 160 telecommunication providers across
the globe. The transaction will increase CM8’s product offering and give it a platform to
accelerate the growth of its micro job platform while enjoying the benefits of Track’s network
and mobile entertainment products.
Track has a mature technology platform that is used to acquire, retain and manage customers
efficiently. Its Global Content Distribution provides mobile content, entertainment and Apps to
millions of consumers worldwide. This will provide CM8 with multiple channels to acquire new
customers across the globe. The Track platform will also allow CM8 to access new verticals
that will broaden its addressable market.
Figure 6: The potential synergies of the transaction
Source: CM8
Track has a mobile payments network that connects with over 140 mobile phone operators
globally with provides seamless electronic m-Payment systems. The m-Payment systems will
help to strengthen CM8 revenue collecting processes. Track is also on a growth path and is
in the process of entering 6 additional countries.
Funding: CM8 intend to fund the transaction through a combination of debt, equity and a
convertible note.
Post-Merger Financial Metrics: The transaction is earnings accretive for CM8 due to the fact
Track is a revenue generating profitable business. CM8 is acquiring Track on a circa 2.5x
multiple of the forecast CY2015 EBITDA. This is a very competitive price which values CM8
on a post-merger EV of $54.7m. On a post-merger basis CM8 will be trading on a pro forma
FY2015 EV/EBITDA multiple of circa 3.4x. As per table 6 this makes CM8 substantially
undervalued relative to its peers in the mobile a technology and entertainment space.
Peer Analysis
Name
Moko Social Media
Mobile Embrace
Freelancer
migme
Crowd Mobile
Code
MKB
MBE
FLN
MIG
CM8
EV
76.6m
79.3m
511m
246m
54.7m
FY15F*
EV/Sales (x) EV/EBITDA (x)
8.6
-4.7
2.5
18.3
14.1
46.7
20.7
-15.4
1.4
3.4
* Pro Forma Track and CM8 FY15
Figure 7: CM8 key metrics relative to its peers.
4
Source DJC, Factset
11 June 2015
RESEARCH
INFORMATION MEMORANDUM
Capital Structure Post Merger
CM8 Pro-forma capital structure
Convertible Note Scenarios
Current
Post Merger - Paid Out * Post Merger - Converted *
Listed securities:
Current shares on issue
85,197,933
106,668,521
189,418,521
Performance Rights
9,000,000
9,000,000
9,000,000
Total listed
94,197,933
115,668,521
198,418,521
Un-listed securities:
Options ($0.25, 04 March 2018)
1,000,000
1,000,000
1,000,000
* Assumes a AUD$33m Convertible Note issued at $0.4
Figure 8: CM8 Capital Structure.
Source DJC, Factset
Strong tailwinds in mobile use: CM8 has strong tailwinds in terms of the strong growth in
mobile phone use and especially in the smart phone category. The age demographic that
CM8 targets is from 15 to 45 as they are the most comfortable with technology. Globally it is
expected that US$60 billion will be spent on apps by 2017. The acquisition of Track will help
it to tap into a broader portion of this market across a wider global footprint.
Risks
Receivables: High amounts of receivables from gateways which results in currency risks.
CM8 therefore seeks to work with reputable blue chip partners.
IT outages: There is a risk of outages at gateways, operators and on own platform which
could lead to decreased billing to customers. CM8 believe that Track operates a well
maintained and state of the art platform.
Rapid Market Developments: The mobile market is fast developing and customers could
move to other platforms. Track have a flexible platform allows adjustments/updates with no
downtime.
Legal requirements & regulation: Different jurisdictions have different legal requirements
and regulation including consumer protection, overregulation and which could lead to
discontinuation of certain business models. CM8 has a diversified, active and disciplined
country portfolio management which ensures quick response.
Dependency on operators: These are required for billing and operators can adjust
legal/technical requirements and may exploit power. These changes cannot always be
charged through to consumers. By becoming part of a larger, further developed party would
enable enlarged distribution power with gateways and telecom operators and in addition,
Track provides multiple services and has established partnerships with multiple gateways in
its key countries.
Dependency on marketing channels: CM8 is dependent on marketing agencies and online
advertising is increasingly regulated. The merged businesses will have established
relationships with a diversified range of marketing agencies and extend the direct buying of
internet traffic.
Competition: CM8 can experience increasing competition due to relatively low entry barriers.
The merged entity will have a strong proprietary platform that is best of breed in the market
with access to over 50 countries.
5
11 June 2015
RESEARCH
INFORMATION MEMORANDUM
Company Background
CrowdMobile began operating in Australia in 2005 and was originally a text message service
on mobile phones. With the growth in smartphones the company has moved to a new platform
servicing smartphones.
Directors
Theo Hnarakis - Non-Executive Director / Chairman
Theo Hnarakis brings a wealth of experience working in the media industry and scaling
Australian ASX listed technology businesses. He graduated from The University of South
Australia with a Bachelor of Accounting and has held senior roles with News Corporation,
Boral Group, the PMP Communications group and was the Managing Director and CEO of
Melbourne IT until 2013. He has also held director roles with Neulevel, a JV with US based
listed company, Neustar and with Advantate, a JV with Fairfax Media. Mr Hnarakis is also
currently a Director of Newzulu Limited, and served as an Ambassador for the Starlight
foundation.
Domenic Carosa - CEO and Executive Director
Mr Carosa has over 20 years’ experience in business and technology. He is co-founder and
Chairman of Future Capital Development Fund Pty Ltd (a registered Pooled Development
Fund). Future Capital has successfully raised in excess $8M in patient equity capital in recent
years, invested in 14 early stage investees and recently launched the Future Capital Bitcoin
Fund which will invest into Bitcoin related companies. He is also Chairman/CEO of Dominet
Digital Corporation Pty Ltd, a boutique internet investment group and Chairman/CEO of global
mobile entertainment company CroudMobile.com. Mr Carosa was previously the co-founder
and Group CEO of ASX-listed Destra Corporation which was the largest independent media
and entertainment company in Australia. Mr Carosa is also a non-executive director of the
listed company Shoply Limited and Collaborate Corporation having been appointed 18 June
2013.
Hans de Back- Non-Executive Director
Mr. de Back has significant experience across multiple high-technology industries including
mobile, gaming, and social media. He holds a master degree in corporate law from Amsterdam
University and has extensive international experience having worked with companies
throughout Europe, North and South America, the Middle East and Asia Pacific. Mr. de Back
is currently the Managing Partner at Incubasia Ventures, which is an unlisted investor and
incubator working with innovative and scalable technology companies. He currently holds nonexecutive directorship for iCollege (ASX: ICT).
6
11 June 2015
RESEARCH
INFORMATION MEMORANDUM
Contacts
Research
Paul Adams | +61 9263 5234 | [email protected]
Michael Eidne | +61 9263 5213 | [email protected]
Disclosure Disclaimer
RCAN1264
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.
DJ Carmichael Pty Ltd has participated in placements in Crowd Mobile Ltd and has acted as the Corporate Advisor to Crowd Mobile Ltd and was
paid a fee for these services. DJ Carmichael Pty Ltd was the Lead Manager for the Placement for Crowd Mobile Ltd and was paid a fee for these
services.
The Author of this report made contact with Crowd Mobile Ltd 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.
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 advise this email contains general financial advice only. In preparing this document D J 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 D J Carmichael Pty Limited adviser. D J 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. D J 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. D J Carmichael Pty Limited believe 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 D J 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.
7
11 June 2015