Mobile Communications | IMImobile - Thoughts?

12th Aug '18 by Tortoise investor

6 comments 1712 reads

IMImobile (LON:IMO) popped up on one of my screens recently. It's got reasonable growth (albeit mostly through acquisitions), the PE ratio isn't too crazy, and the chart setup for Minervini lovers looks of interest trading above the 50 and 200 day moving average and arguably in a period of consolidation. I thought I'd generate a discussion thread to hear views as I am considering buying.

In short, it basically helps companies to communicate with its customers, particularly through mobile devices. It counts businesses like O2 and Vodafone, or banks like Barclays, among its own customers. IMImobile (LON:IMO) helps them to deal with complaints or basic queries through chat and social media. It improves call-centre efficiency, fraud detection, and improved customer service. It is also developing AI and automated services although I haven't worked out how successful these products are yet. I imagine they could get knocked out by a competitor with a good AI system if they are not careful when AI technology has more success.

Note that there is an issue about a large number of share options which Paul Scott has previously covered. I am OK with this as I have factored it into my calculations of the company's profitability etc. You just need to be careful not to ignore it I think.

PROS:

It operates in a growing sector and speedy customer service is becoming more important for businesses in the social media age. The company seems ambitious. I think I might have used its systems with Vodafone which I've found to have good mobile and online customer interaction.
Probably less affected by the economy than some companies and may be more Brexit-proof as it is focused on UK and rest of the world outside Europe at the moment. It also benefits from a weak pound (which has recently devalued further). So this would fit well in my own portfolio as I am particularly interested in companies which may be more insulted from a UK downturn.
Good revenue growth of c.40% last year. BUT this is acquisition-led. Organic growth was 7%. 14% revenue growth expected for 2019.
Its most recent acquisition of the Canadian company Impact Mobile looked like good value and helps the company move more into North America.
It talked about the new financial year starting well.
14.7p EPS expected…

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Maddox

13th Aug '18

Hi Patrick,

I'm an IMImobile (LON:IMO) holder and adder. Very much like its strategic positioning and characteristics.

It's quite a mature business about 17 years old and occupies a market sweet spot providing mobile and digital applications for brands to manage customer engagement and comms with their customers. IMO appear good at keeping up to date with new channels (e.g. Rich Communication Services (RCS) messaging) and integrating them into their offering. As customers increasingly move online using social media messaging brand owners need to follow them.

These are the sort of heart and lungs applications that once integrated into a Company - there needs to be a very good reason to change. So they have very good customer retention and recurring revenue historically.

As you mention, they have some prestigious clients, over 100 blue chips including Vodafone, O2, AT&T, Post Office , John Lewis, IKEA, AA, BBC, Santander, Barclays Bank. They are also well spread geographically, in over 60 countries across Europe, The Americas, Middle East and Africa.

On a comparative basis with the likes of dotDigital (LON:DOTD), Eckoh (LON:ECK), Netcall (LON:NET) that are in the older customer comms channels of call centre and email - they also stand up very well on a value.

Regards Maddox

Tortoise investor

14th Aug '18

It looks like dotDigital (LON:DOTD) does provide SMS messaging. However, I think £DOTD's offer is based around marketing and not about answering customer queries or concerns. It might not be hard for them to advance into £IMO's territory though.

I have opened a position in IMImobile (LON:IMO) but keeping an open mind as I am still a bit concerned by its low margins and competitive pressures.

mmarkkj777

I'm interested in IMO, but have not bought yet. I have a fund with a largish position in this stock which gives me some confidence as the fund manager is an excellent stock picker.

17th Aug '18

Picking up on your point about low margins - yep they don't look great but the acquisition costs are making them look worse than they otherwise would be.

The competitive pressure in the markets in which IMO operate is the pressure to stay abreast of the rapidly changing communication technology. This requires IMO to invest in new messaging channels and techniques, Artificial Intelligence, and the like - so they capitalised about £5m R&D last year. Then there will be additional integration costs for the takeovers and they also state that they are investing more in their sales force. This is all in-line with what you would expect as IMO is pursuing a growth strategy - as well as looking to consolidate in a fragmented market.

So I don't expect to see a dividend for a while.

Carey Blunt

20th Aug '18

I'm a customer of their services (in a small way) at my work. They seem like decent people to deal with, the services they offer seem pretty standard but maybe unspectacular.

The posts here don't seem to be very clear on what IMIMobile actually do so I will try and clarify by explaining what we use them for....

We use them as a SMS provider and aggregator. By which I mean I use their services to send SMS text messages all over the world from various Applications we run. If I want to send an SMS text message to 100 individuals who work for my customers in various countries then I make an "API call" to their SMS gateway with the details of the message and then they send it to those 100 peoples mobile phones.
I get charged a rate to send those messages and then IMIMobile use their relationships with mobile providers in each country to deliver the messages at a rate they have negotiated with the local provider. the difference between what I pay and what IMIMobile get charged by the local providers is what they earn from the transaction.

By using their size and aggregating together customer demand, IMIMobile can do deals with local providers to drive down their cost to send and so manage their margin.

So aggregating telecoms services and providing technology to make it easy to access (various gateways) is the basis of the IMIMobile business as I understand it. Maybe they do much more than this but that's my experience of them.
I would think their main challenge maybe comes from big US services like Twilio who do similar things but have Silicon valley mite and momentum behind them.
I hope this helps,
cheers
Carey

Very useful. I had overlooked the way they cut deals with mobile providers so that's helpful, thanks!

IMImobile - thoughts?

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