Globo - massive growth potential from a PE of 10

Saturday, Mar 31 2012 by
11

Globo announced their Dec 2011 results yesterday. They were excellent but the market marked them down a tad; its hard to see why. My initial take on their current position is extremely positive, particularly for those who have some risk appetite where the upside is massive.

This is not completely risk free but the underlying business looks to be of such quality the risk is limited. Having said that the opportunity looks massive, its currently my favourite 'the next ASOS' punt.

I was fortunate to attend a couple of investor presentations a little over a year ago and bought then for potential international growth in their existing business lines and the GO Enterprise Server potential. I had the strong feeling the board saw GO ES as the 'big one' for them. Looking at the state of RIM, the easier deployment of their technologies as well as the benefit of integration onto an existing smart (or feature) phone I could only agree. In fact my company tried to evaluate the GO ES service but the lines were so busy we could not get a response (hopefully this has been dealt with now).

The accounts paint an awesome picture:
1. if the international growth continues through the year at the same rate the Greek business will be almost irrelevant; 246% for goodness sake. It does not rely on rich markets either, so the potential for continued growth remains intact.
2. margin growth when they are launching a new project the size of ES GO is impressive - I would have expected a one year reduction.
3. EPS grew at 14%. On the face of it modest but again think of the time lag from receipt of the new capital to a ramp up in GO ES sales. I expect next year the earnings growth to increase faster.
4. the other financial stats are more impressive and are well flagged in the results.
5. An achilles heel in these companies can be debtors as many customers are large telecoms co's. These have increased just 15% against the turnover increase of 46% presumably back end loaded.

I don't actually know what their brokers have predicted for next year (anyone?) my money says they will beat it!


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    Globo plc is engaged in the provision of telecom, mobile software products and related services, as well as developing and operating broadband wired and wireless networks. The Company operates in two segments: Mobile products and services and Telecom services (S.a.a.S). Its Mobile products and services segment in sells its own mobile software products and services to its clients. Its Telecom services (S.a.a.S) segment combines telecom services with its own software products (e-business and WiFi services) that are then sold on software as a service basis. The Company’s WiPLUS consists of a managed service provided to hotels, airports, marinas and similar locations with Globo receiving revenue from venue owners. The Company’s GO!Enterprise is a platform for development, deployment and management of secure mobile apps. more »

    Share Price (AIM)
    46p
    Change
    1.5  3.4%
    P/E (fwd)
    5.4
    Yield (fwd)
    n/a
    Mkt Cap (£m)
    166.3

    InternetQ plc, formerly InternetQ Limited, offers mobile marketing solutions and digital entertainment. Through the mobile marketing technology platform, it also provides digital content to mobile subscribers through its Akazoo module, which is an online and mobile entertainment hub. It operates in two segments: The Mobile Marketing operating segment, which is designed for campaigns on mobile telecommunications networks, and The Mobile Entertainment operating segment, which is engaged in offering access to digital content (music, games, subscriptions). Its platform is offered as a managed or software as a service (SaaS) self-service product, supporting technologies for the Worldwide mobile audience. It is focused on mobile messaging, mobile applications, Web and Internet applications, mobile payments and digital content management. In mobile messaging, it focuses on short message service and multimedia messaging service. In July 2013, it acquired Atlas Interactive Deutschland GmbH. more »

    Share Price (AIM)
    357.5p
    Change
    0.0  0.0%
    P/E (fwd)
    12.4
    Yield (fwd)
    n/a
    Mkt Cap (£m)
    142.3



      Is Globo fundamentally strong or weak? Find out More »


    36 Posts on this Thread show/hide all

    Edward Croft 31st Mar '12 1 of 36
    2

    Brokers are showing a consensus estimate of €13.8m for 2012 which would equate to a 48% increase in eps. I believe Globo were presenting at the proactive event on Thursday, but I've not had time to check out any of the other boards - don't know if you were there?

    Last time I looked at Globo my bugbear was the fact that it hadn't generated any free cashflow in the last 6 years - which is certainly the one black mark on its copybook from a Zulu Principle perspective.   It may also be that the whole Greek association has been holding Globo back considerably in investors minds. A lot of AIM investors are more skeptical about investing in foreign domiciled companies than they used to be, given the amount of trouble some of them have given AIM / Nasdaq investors over the years - so there's naturally a discount being applied here.   Globo is on an 18% discount to the average PE ratio in the market - certainly from the projected growth perspective there's many who think that's too steep.

    Blog: Follow @edcroft on Twitter
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    fredahad 31st Mar '12 2 of 36
    2

    I attended the Stockopedia presentation at end of March, and was impressed by the prospects for international growth, particularly for the out-of-the-box Go!Enterprise server. This is a huge potential market that they can address by bringing functionality to workers' own phones, irrespective of make/model. If they succeed in tapping even a tiny part of this potential market, they should do extremely well. Temper against this: the last time I got so positive following gung-ho Tech. company director-speak, was with the Israeli mobile video company "Emblaze". That turned out very badly in the end, with its CEO doing time in jail. I am no way comparing the two in a fraudulent sense, but the Emblaze-experience will reign in my clear enthusiasm for Globo to down to earth levels. I will not bet the farm here. I would expect great newsflow from the company in the coming months, and if they deliver on the stated intention to divest the Greek operation, this will at a stroke set the SP on a steep upwards path.
    Regs,
    Freddie

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    Monty9 31st Mar '12 3 of 36
    2

    The turnover is roughly half international and half Greek, with the international income having grown 246% in the last year. The bull tack is that international income could easily do the same in 2012, and the GO ES initiative could blast it way beyond that. The Greek income becomes irrelevant in that scenario although for motivation and local support I think it would be a pity to divest it. However, the fact that they are physically based in Greece gives them access to highly qualified engineers who are delighted to work for them as a cost well below, say, London. For me the only serious issue with the Greek location is the possibility the situation might deteriorate to the point that the infrastructure they rely on for development and support fails; an unlikely outcome even now.

    Turning to the lack of cash generation I accept that a year ago the debtors were quite scary. The ratio of debtors to sales is now much improved however. A cursory glance at the accounts shows they generated EUR5M of operational cash of which £4M was drawn into debtor increase as the operation expanded. If the business remained at this level it should produce EUR5M cash in 2012. A further EUR14M was invested in tangible and intangible assets. I don't know if that is capitalisation of the ES development or the acquisition but it won't be a cost of the current revenue which now provides a stable platform for continued investment in the future.

    The worry that overseas companies have on occasion left UK investors high and dry is inevitable, unfortunately. If things don't go well I wouldn't expect to see much back, however, if they continue on the current trajectory they rewards for success accruing to the management will be optimised with a happy investor base. This investment is all about the size of the upside and hoping that will be several times the current valuation, its a risk I am happy to take.

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    fredahad 2nd Apr '12 4 of 36
    2

    At the presentation, according to the CEO, Greek operations contributed just 15% of the overall group profit. He seemed highly motivated to divest, and intimated that the likely outcome would be value enhancing for shareholders.

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    Roger Lawson 5th Apr '12 5 of 36
    3

    Re Ed's comments, I am not sure you can expect a software company that is just developing a major product to generate free cash flow in the early stages of its growth. I attended the Proactive Investors presentation and subsequently had a meeting with the CEO. As a result I think this company has a great opportunity although there are some issues that need to be understood. I just did a complete write-up on this company which is present on the ShareSoc Members web site and will probably be in our next newsletter.

    Website: ShareSoc - UK Individual Shareholders' Society
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    Murakami 5th Apr '12 6 of 36
    3

    Here's a temporarily unlocked version of the Globo Stock Report for those that are interested to see it. 

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    Monty9 24th Jul '12 7 of 36
    1

    An extremely positive trading update this morning with a promise of more in the second half. I haven't studied it carefully yet but it may have reached the stage where the cash flow position can improve without unduly hampering the rate of investment in their technology. If the Enterprise GO Server performs as the company anticipates this just could be a major success story.

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    SumGame 1st Aug '12 8 of 36

    In reply to Roger Lawson, post #5

    Roger, the company write up show an impressive "new building" in the April 2012 (Share_Soc_15) but there is no indication of where this building is. Greece(?) or when the building was first occupied.

    My concern is the current intent to "divese the Greek operation" verses the 2011AR which highlights building lease as a "risk" (granted, both positive and negative but in todays IMO negative unless sold as a going concern), does this bring into question the long term management stratergy?

    As I comment above, I am not sure when this "new" building became a company leasing liablity nor what duration for, but non current liablities has increase over tha past 3 years
    GBPm 3.9 -2010 ; 5.1-2011 ; 6.1-2012.

    Have you any insight?

    Kind regards
    SG

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    Roger Lawson 1st Aug '12 9 of 36
    1

    The building is in Athens I believe. I am not aware of any lease details. But even if the Greek general IT business is "disposed of", I think the intention is probably to keep the software development operations where they are so Globo would surely need to retain office space in Athens. Obviously this would need to be one issue wrapped up in any disposal - a transfer of the office lease, sub-letting that part being retained/transferred, whatever. If you think this is an issue, perhaps you should ask the CEO about this.

    Website: ShareSoc - UK Individual Shareholders' Society
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    Monty9 6th Nov '12 10 of 36
    1

    Globo presenting to UBS in New York on 15 Nov 12, the rating is so poor currently at around 8 historic, there is a chance of a good boost.

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    Monty9 30th Nov '12 11 of 36
    1

    Up 13% on following news release...

    GLOBO signs major UK and Irish distribution agreement for GO!Enterprise product suite with COMPUTERLINKS

    Globo Plc (LSE-AIM: GBO), the international mobile solutions and S.a.a.S provider, is delighted to announce a distribution agreement for GO!Enterprise products with COMPUTERLINKS, the next generation global distributor of IT security and Internet technology solutions.

    This agreement is a significant development in the commercialisation of GO!Enterprise products in the European market. COMPUTERLINKS has been operating for over 20 years in 23 countries and is recognised as a next generation distributor that works closely with its channel partners to develop and deliver solutions that solve their customers' IT challenges.

    Under the agreement, COMPUTERLINKS will offer the GO!Enterprise product suite to its channel partners in the UK and Irish markets, adding enterprise mobility solutions for any business in any vertical market to its existing portfolio of products and services.

    GLOBO's CEO Costis Papadimitrakopoulos commented: "We are delighted to have established a partnership with COMPUTERLINKS which will enable GO!Enterprise to gain traction in fast growing and highly competitive markets. This is our first major move in the UK and Ireland, which are key markets for Globo, and represents a significant step in the roll-out of GO!Enterprise in Western Europe."

    David Ellis, director of new technology and services at COMPUTERLINKS, added: "GO!Enterprise adds best of breed mobility solutions to the COMPUTERLINKS new technology portfolio. Enabling mobile access to enterprise applications is a real concern for UK businesses and one that we know our partners are currently looking to address. Having the ability to deliver mobility to businesses quickly and cost effectively, whilst embracing the Bring Your Own Device (BYOD) trend, is a key opportunity for the channel."

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    Monty9 25th Dec '12 12 of 36
    3

    Another very positive RNS out this morning - a major European distribution agreement and further hints of a USA development soon. Share price hardly moved - possibly due to the news coming out on Xmas eve.

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    marben100 29th Dec '12 13 of 36
    3

    Have been looking at this one for a while - but haven't yet dipped a toe in the water*.

    On looking at it again, I observe one factor that concerns me a bit: the level of trade creditors. As at 30th June 2012 these stood at €26.8m, vs 6 months revenue of €25.2m - equating to debtor days of 194. The good news is that this has been steadily reducing over the last couple of years: on 30th June 2010 it was 295 days. Progress on reducing debtors has been slowing, however, as the following table shows:

    Date Debtor Days
    30/06/12 194.1
    31/12/11 201.4
    30/06/11 219.7
    31/12/10 251.6
    30/06/10 294.9

     

    With the original business being Greek oriented, I am not surprised at slow payments. However, as the business has internationalised and is moving to a more subscription based model, I am surprised to see average debts still more than 6 months old.

    Experience has taught me to be wary of businesses that, in effect, offer "vendor finance" to their clients. Leadcom was a classic example, which I managed to avoid. The need to offer extended credit terms to attract business suggests that the product/service may not be as wonderful as the company purports it to be.

    What do shareholders think? What is the explanation for such a high level of trade creditors?

     

    *I am currently already overweight my target asset allocation for "misc" investments (which this would fall under), so am reluctant to add another shareholding... but maybe I could justify classifying it as an "international/emerging markets equity" asset?

    Mark

     

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    loglorry 29th Dec '12 14 of 36
    1

    Just trying to get my head around what this actually is. It looks like if you are a company you buy one of these Enterprise servers and the mobile client software with it. This allows users to connect to company exchange servers (for email calendars etc) and browse the company file system and also connect to popular CRM systems that exist. They also provide an API so that you can build your own mobile client apps to connect to things back at HQ and provide a corporate social media site for all mobile clients to access. Administration is all server based to allow one admin back at HQ to control access for all the mobile clients.

    Seems like a clever bit of kit if it is selling well then it probably does what it says on the tin.

    I'd be massively wary of competition though from much larger companies like Salesforce and the larger software vendors Microsoft etc. It seems a very natural thing for companies to want to do and they have much greater access to capital to develop much slicker sofware and the marketing power to blow away a tiny firm like this. Equally though they could get taken out by a bigger competitor so this mitigates the risk.

    Sales are growing but are actually quite tiny still so we can't really be sure that they have something that will be adopted globally or if its just the case that a few large customers have bought their product.

    Not one for me because I think the silicon valley crew with billions to throw at this problem will compete them out of the space. They might buy them out but I don't think its a good investment strategy to buy them in the hope that they are bought out.

    Log

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    Roger Lawson 31st Dec '12 15 of 36
    2

    The issue of debtor days and cash collection certainly came up at the 2012 and 2011 AGMs if you read the reports on them on the ShareSoc members network. In essence it seemed to be down to old practices in Greece of lengthy payment periods, although it was stated that this was improving. Although there is more business outside Greece of late, there is also a lot in other similar slow paying countries which from my experience is a perennial problem in mediterrean and eastern European countries.

    As regards for Loglorry's comments about competition from silicon valley, if one accepted that view nobody would ever start up a new software business, even in California. That obviously is not true in reality (for example Skype was developed in Estonia) and this is a very specialist market. Although there is some competition, it's not necessarily large or unbeatable.

    Website: ShareSoc - UK Individual Shareholders' Society
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    loglorry 3rd Jan '13 16 of 36

    Roger thanks for your comments. It's interesting that you mentioned Skype. They were very fortunate in being bought out by Microsoft (from memory) for an absolute fortune way more than made any sense at all. I doubt they'll ever make Microsoft much money and certainly unlikely to represent a good return on investment for Microsoft. Surely this example proves my point as a big US outfit did infact corner the market in Skype like VOIP by buying them out. This might happen to Globo too with a bit of luck for holders but I doubt very much they'll make it on their own otherwise. I thought Skype were Dutch owned though - the software might have been developed in Estonia though for cost reasons.

    Can anyone come up with many examples of software companies (product based) that have made it big from Europe with their home grown products? They are surely few and far between. I'm sure some exist but its not something that we do that well in Europe compared to the US and in particular West Coast US companies. On that basis in order to maximise returns it seems sensible to avoid this sector in Europe for the reasons mentioned e.g. they do it better with more capita / knowhow / IP protectionl in the US and so tend to dominate this sector.

    I didn't quite understand why you say "nobody would ever start up a new software business even in California" as surely that is the ideal place for a software start up. Access to lots of venture capital and know how and plenty of investors that are willing to back and promote product based software companies there.

    I'm really not saying its impossible to succeed and there are examples that break the rule but I think it is far harder in UK/Europe than in the US and as such competition from the US is much fiercer especially in the area Globo wish to dominate. A great exit for Globo holders would be to sell out to a larger cash rich US based software vendor. The danger is that the predator might choose a competitor or go for a home grown solution and just compete them away by pure marketing might.

    Almost to prove my point Globo is trading on a p/e of 10. A fast growing product based company on Nasdaq would probably trade on a p/e of more like 50-100 and as such they could raise new money to grow quickly much more easily than Globo ergo are much more likely to succeed. The upside is that Globo might be a very good aquistion target especially if paying in over-priced (IMHO) Nasdaq stock.

    Does anyone have any insight on Globo's competitors and who might see them as an attractive bolt on aquistion and why?

     

    Log

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