Hunting For Compounders - Tremor And Reach

29th Oct '20 by Jack Brumby

27 comments 7561 reads

Attractive risk:return comes in many forms. Yes you have your safe, quality Unilevers but at the sharp end you have the dirt cheap ‘cigar butts’ that Benjamin Graham was so fond of.

It feels as though there are more than your average amount of interesting turnaround prospects at the minute. Perhaps it’s the COVID impact: bombed out share prices, emergency fundraises and transformed balance sheets, revitalised operational strategies…

We’re seeing Schumpeter’s Gale of creative destruction at speeds rarely witnessed, with many companies fitting years of evolution into a period of months.

There could be some once-in-a-generation opportunities out there (the same can be said about the risks, of course).

In Hemingway’s The Sun Also Rises, there is a snippet of dialogue that goes:

How did you go bankrupt?

Two ways. Gradually, then suddenly.

If you invert that you get something like:

How did you recover?

Two ways. Suddenly, then gradually.

Timing can be crucial. With turnarounds, the upside can be sudden and dramatic but sitting tight in the meantime requires a particular mindset.

With that caveat, I’ve started looking for turnarounds - but specifically those that are showing tangible signs of recovery and positive share price momentum.

Two such stocks on my radar are Tremor International (LON:TRMR) and Reach (LON:RCH) so I’ll look at them below - but it would be great to crowdsource some more candidates in the comments.

Tremor (LON:TRMR)

Revenue: £244.5m

Net debt (TTM): -£51.6m

Market cap: £292.8m

QV Rank: 73

Tremor was formerly Taptica, and before that, Blinkx.

It’s a digital video advertising specialist with operations in more than 60 countries.

There are three core divisions: Tremor Video, which helps advertisers deliver brand stories through innovative video technology and audience data; RhythmOne, its media division; and Unruly, a video marketplace directly integrated with publishers and relationships with global advertisers. i_Ij1yDLrsdrwCBYMZ-Te4G7ckE3oH9MeT0BY5gas6TyOQ7-SbiptGIU7vG-GGGIfdXRmpNWx1Xq_5rFct4E456VsplIlqMyMDK2LqsE9p7wKOxbw1Hh__PFt_xSK36_yfUcrk--

The company deals in programmatic advertising and the bull case says recent acquisitions of RyhthmOne and Unruly have shored up Tremor’s technology stack, turning it into a truly end-to-end video advertising platform.

Breaking it down

And so what does that mean, then?

Economically, it’s almost like a stock exchange, but instead of buyers, sellers, and stocks, it matches brands, customers, and brand content.

It adds value in the middle by optimising those matches, collecting data on otherwise anonymous online users, providing…

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john2

30th Oct '20

I think that the Stratechery piece makes a very good point when it says that what readers want in a local newspaper is substantive articles on local issues. My local weekly newspaper (the Western Telegraph) is owned by Newsquest rather than Reach, and a few months ago a large part of its content started to be glossy pages covering recipes, home decoration ideas and weekly offers at Aldi. These are not what I want from my local newspaper - I want information about my local area. After a few issues in the new format I stopped buying the paper. I don't know if the Reach titles have gone down a similar path, but if they have then I suspect a large proportion of readers will react as I did.

jonno

Good morning Jack

Thanks for the feedback on £REDD. We will have to wait and see how things evolve. Another national lockdown which is perhaps more likely than not will hit most share prices, including Redde Northgate (LON:REDD), but despite that concern there are more positives than negatives about the stock.

I agree with your views on content, thoughts of which invariably bring me back to Itv (LON:ITV), which I hold and added to early in the pandemic. I am biased and currently poorer for it. But Itv (LON:ITV) has an enormous back catalogue, which together with ITV Studios are in my view worth more than the current share price. The millstone remains the dependency on conventional advertising although this is slowly being reduced. There is also the nascent but evolving digital/streaming part of the business, ITV Hub and Britbox. I think that eventually something will 'give'. Either it will be acquired for its content and studios or perhaps a merger. Wishful thinking maybe, but given the attractive metrics, free cash flow, ROCE etc. is it really only worth just over 8 times earning falling to below 7 next year.

I am singing from my own song book, but to paraphrase the great Eric Morcambe, I hope that I am singing the right notes, but this time in the right order?

All the best

kgb1953

The world of the Internet shows that the prize goes to the biggest and to claim that
you are the fifth largest if you add everything we do together - 70 Internet sites! - isnt that inspiring. Wouldn't it be more accurate to say we have the 10th, 12th, 111th, etc... What brand recognition do any of the individual titles have? Can they be consolidated into say 10 sites? Most of the sites like the Daily Express - 80% of the articles are still about Brexit - are awful.

What about the Daily Mail? Surely thats bigger?

Not to say that there isn't a value play here. But ... the printing press business is finished. It is completely uneconomic to replace these as the Capex is very large and the returns aren't there. Then there is the pension fund.

doublelutz

It's the local sites that count. That is what people are searching for. Local news. They are not searching for news about Brexit. Try searching for news in a particular location and see how often a site owned by Reach comes up. That is their brand recognition. I can't see that it matters that there are 70 sites rather than 1. That is a strength not a weakness. When people search for news in Macclesfield they want to be taken directly to that not to a conglomorate site that includes news from Portsmouth and everywhere else.

Brilliant Leader

31st Oct '20

I have recently started the news aggregator site https://www.newsnow.co.uk (which is excellent by the way) and quite often the stories are by Reach publications. And as a recent shareholder in Reach (LON:RCH) my main focus was on the local titles and their ability to deliver data driven revenue growth. I shall be watching for the successful execution of this strategy over the coming months.

well that’s odd. Having to invest in 70 sites is more costly than 1. Did you know they had 70 sites? Have you been on the dreadful Daily Star and Express sites?

LeopoldAlcocks

Hi Jonno,

I work for a major content producer and I can verify that there is a mad scramble for content right now.

New players and old are competing for market share, and making huge bets to attract it. The netflix yearly content budget alone is astounding.

Demand for content is at an unprecedented level, and becoming more scarce at the same time, as providers such as Disney and hbo gradually pull their IP from the market to put onto their own platforms.

It bodes well for itv studios and the back catalogue.

Bear points:

Are we at peak content demand? Surely some of these guys will go bust long term as there are just too many players in the market

Itv is kind of regulated being a terrestrial broadcaster, which may limit its pace of transition

The current advertising landscape is terrible and will hit short term cashflows

The traditional networks are in trouble medium term, so I expect some years of hardship

Titles that have been performing well, such as love Island, will need replacing with new ideas

They typically broadcast a lot of live events, especially sporting events, which are at risk of cancellation.

. Hold a small position, which I intend to build, due to the strength of the IP. But there will be plenty of opportunities to pick this up cheaply over the next 12 months, I think

Cheers

Pkr1988

1st Nov '20

Hi pkr 1988

It is good to get feedback from someone close to the 'coal face'. I have held Itv (LON:ITV) for longer than I care to remember. It bottomed out at about 50p in the 2008 meltdown. I think the share price will recover over time, but as to when is anyone's guess. While I can to see value in the company I will continue to hold and will add to what is a sizeable position if I am offered a really silly price.

It is one of the two leisure stocks I continue to hold, the other is Fuller Smith & Turner (LON:FSTA), for much the same reason in that I can see value in the business. It has a relatively ungeared balance sheet, thanks to the sale of the brewing assets at a great price, about 90% of the estate is freehold and their is the Fullers brand. Fullers has been about since 1845 and I fully expect it and the British pub to be still standing when the pandemic is over.

Keep well

Edward Croft

2nd Nov '20

Reach (LON:RCH) was tipped in the Small Company Share Watch at the weekend. I think that's why it's up 13%. It's not taking much for the price to move far at the moment. So much for efficient markets.

Gromley

To be honest Ed, that's actually quite a modest increase for a SCSW tip, they are often up by more than 20% (and the price of course is normally marked up at open so no chance to buy at the "tipped" price.

Probably a more modest increase in this case as SCSW are somewhat behind the curve on this one, with the price already up 100% in the last 3 months.

4th Nov '20

Yes, I thought they may have more than 100. Having set up an account for one area it is not too expensive to set it up for others. I agree that the websites are not that attractive but what they have of value is visitors. Plenty of better websites do not have any visitors. Each individual "newspaper" is well known in its area. These are incredible assets whose value may be very much in excess of the share price and they can always work on improving them if they have a mind to.

carmensfella

7th Nov '20

At the next MelloMonday on 9th November both of these companies will be featured. In the MelloBASH companies to be covered on Monday include Peloton, Reach, Tremor, Tristel, Versarian

The whole event is by zoom invite and the whole programme can be found here...

https://melloevents.com/upcoming-event/mellomonday-9th-november/

Both of these companies will be featured and analysed in detail on the MelloBASH this Monday at around 8pm through to 9.30pm. The BASH stands for Buy, Avoid, Sell or Hold.

It is part of the MelloMonday event which is going to be held every two weeks or so through the next year whilst Mello events and conferences cannot be run physically. The evening sessions start at 6pm and include interviews with fund managers and well known investors plus educational content provided across a series of presentations.

The whole event is by zoom invite and the whole programme can be found here...

https://melloevents.com/upcoming-event/mellomonday-9th-november/

Do come and join us for a very entertaining evening. Tickets are half price if you enter the code MMStocko21 and if you want an annual pass for 18 of these MelloMondays it will only cost you a fiver per evening event and you do not need to leave the comfort of your home....Incidentally the recordings are sent out to you about 36 hours after each one too..

A_Private_Investor

Agree with doubelutz about the 'marketing' side. The main thing is 70 sites with one set of common infrastructure behind it = economies of scale and a large data set that can target advertisers to individuals whether on the Daily Star or Huddersfield Flyer (if it exists) website.

19th Jan '21

I thought that there was a more recent thread on Reach (LON:RCH) than this (was it subject of a "stock pitch"?) but it did not show up via the StockReport, so I will post here.

I notice that Small Company Share Watch [SCSW] tweeted on Reach (LON:RCH) this afternoon :

#RCH N+1 Singer notes that 25% y/y growth in
Digital represents the Group’s best like-for-like performance in 16 quarters, eps forecast 33p. A colleague just spotted something rather interesting which I will update in next issue

I'm pretty sure most here will already be aware of the first point, but I wonder what the other "interesting" fact is?

I live in hope, if not expectation, that it is an upside that we do not already know about!

Rusty2

Yes there was a stock pitch: https://app.stockopedia.com/content/stock-pitch-reach-lon-rch-695128?order=createdAt&sort=desc&mode=unthreaded

I don't subscribe to the SCSW but I was thinking about trying it, how do you find it?

Thanks Herbie,

I was sure there was a later - but it didn't show up on the discussions tab of the Stockreport (have reported via the green smiley).

How did you find it?

As to SCSW - I don't subscribe either. From what I have been able to determine however, (from things the put in the public domain), the analysis is good but I'm not convinced subscribers can value from it.

The publish at the weekend and all of their best tips seem to open up 20%+ on the Monday morning. I tend to think that I would do best "selling the spike" whenever they tip something I own and buying back later, would be a profitable trade.

I believe though that they have been 'long' Reach for a while now, so their probably won't be a major reaction, but I'm interested if they know something new.

Thanks Gromley.

Yes there is a known problem, on the old site with recent discussions not showing up, I reported it a long time ago but as it’s only an old site issue, nothing has been done about it. I found it by using the new site, it’s about the only time I go there.

Re SCSW, I did notice they had tipped most of my most successful shares of 2020 but I had bought in later. So I thought it might be worth subscribing, not that I’m keen on tip sheets.

I did hold Reach (LON:RCH) for a few weeks but sold out on the day it went up about 50%, I thought it went too high, I may buyback again. I was very late getting int Reach (LON:RCH), it was their local news coverage that did it for me.

Woodstock69

21st Apr '21

I am a subscriber to SCSW and agree their tips do tend to spike up just post release. I have found though that a little patience rewards. In the case of Reach they were first tipped in Feb20, I liked what I saw and bought on 4th Feb. With the Covid sell-off starting on 24th Feb, I sold out everything (almost) including Reach (LON:RCH) on 26th for a small gain. Bought back in progressively through 2020 and am sitting on an annualised gain of 64% and rising.
I have a number of other good gains with SCSW tips which far outweigh the shockers, of which only a few. I do my own research and only go for the ones I like.
So SCSW not behind the curve on this one as subscribers will know, a very good value subscription as far as I'm concerned

I keep looking at SCSW as they send me emails with offers but I know about most of their tips in the recent samples they show.

Reach (LON:RCH) I used to hold but sold out a while ago at around 224p.

What's people's views regarding Google change in cookie policy, will this have much effect on Reach (LON:RCH) ?

Hunting for compounders - Tremor and Reach

Tremor (LON:TRMR)

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Jack Brumby

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