Is Bango (BGO) a Minervini Stock, looks like it might be....

Monday, Nov 27 2017 by
12

Having just finished Mark Minervini's book "Trade Like a Stock Market Wizard", I have found myself quite taken by his techniques. 

From what I've learned, and I do feel I need to read the book again, Minervini is keen on revenue and earnings growth and also improving margins. No rocket science there. However he also dovetails this with price and volume action. Specifically the stock needs to be in an overarching up-trend.

It would seem to me that Bango (BGO) meets many of Minervini's criteria. Bango provides a mobile payments platform, customers procure products using their mobile device and these items appear on their phone bills. 

They have recently done a deal with Amazon Japan and two Japanese mobile phone operators that account for 75% of the telephony market. Apparently half of all online transactions in Japan are done on a mobile device. Additionally new deals with South Korea and Nigeria are in place, these countries have online procurement habits similar to Japan. To cut a long story short Bango is growing rapidly and is now at a point whereby revenue is more than the cost of providing the platform, as a result Bango is now profitable on a monthly basis.

Given that a picture is worth a thousand words, here are some pictures 

5a1c678e77219Bango.JPG


As you can see an improving situation, and now we know they are profitable too on a monthly basis, therefore the forecast for the full year to 2018 seems very achievable. But price action is what we really need to take notice of, as fundamentals and technicals need to match :

5a1c6cad5fe26BNG_Chart.JPG

Points to note here are : 

  • Bango is in an established up-trend demonstrated by the SMA's
  • The stock is currently in a Stage 3 Topping Phase having completed a successful Advancing Stage 2. The key point here is that whilst in Stage 3 the share price range is starting to narrow.
  • The most telling aspect is the very visible and reducing volume within Stage 3, of all the stocks I've looked at, this is the first that has demonstrated such a dramatic fall off in volume. Minervini sees this as a key attribute within Stage 3.

So in summary it feels like Bango has the potential to be one of Minervini's super stocks. Obviously I welcome any thoughts and feedback.


Filed Under: Gurus, Growth Investing,

Disclaimer:  

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. The author may own shares in any companies discussed, all opinions are his/her own & are general/impersonal. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


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Bango PLC (Bango) offers the Bango mobile payment platform. The Company's principal activity is the development, marketing and sale of technology to enable mobile phone users to make payments for digital content and media on smartphones and tablets. The Company's segments include End user activity and Platform fees. The End user activity segment includes the content access fees paid by end users for accessing chargeable content provided by digital merchants, adjusted to take account of whether Bango is agent or principal in the transactions. The Platform fees segment includes the amounts paid to Bango by digital merchants and others for package fees and other services, including analytics and operator connections. Bango Grid is a resource for Bango application store partners to plan their payments strategy. Bango Grid enables partners to find the statistics of every mobile operator globally, and a range of other payment methods. more »

LSE Price
93p
Change
18.5%
Mkt Cap (£m)
65.3
P/E (fwd)
12.1
Yield (fwd)
n/a



  Is LON:BGO fundamentally strong or weak? Find out More »


37 Posts on this Thread show/hide all

Mike888 28th Nov '17 18 of 37
3

In reply to post #246448

Hi blondeamon, I can see where you are coming from.

But the point is that the company has reached a point now where revenues exceed platform costs, we are told that platform costs are relatively flat regardless of transaction traffic. You can see this demonstrated in the figures. So now revenues should translate into profit, and we are told that this is now the case.

It's always difficult to value growth companies that are loss making, and normally I stay well clear of them until there is evidence of profitability and I also need to see demonstrable betterment in the financials. I believe the latter point has been demonstrated since 2014, and we also now know that Bango is profitable on a monthly basis too.

I do feel that I am overly defending this stock which is not my intention, and wasn't when I posted this article. I do urge people to do their own research and equally I do not believe this is a stock for everyone. Its just my opinion and at the end of the day people can take it or leave it.

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abtan 28th Nov '17 19 of 37
8

I've been following Bango (LON:BGO) for a number of years now and have never had enough conviction to buy. Some thoughts from my notes for those who may find them useful:

  • The CEO has always been bullish and said many times that profitability was just around the corner. I believe he even said it last year, then delayed his prediction for another year. I don't think Bango have ever been profitable since they were formed (16/17 years ago?)
  • Admin expenses are c£6m pa (and rising). In order to offset this cash expenditure a significant increase in EUS is still required...and that's just to get to breakeven.
  • Their main customers appear to be Amazon/Google/Microsoft. I cannot imagine any of these companies not putting long term pressure on Bango's margins. I remember reading a few years ago that Bango charged something like 2,5% on each sale, or they said they wanted to. To put this into perspective PayPal charge small businesses 2.5% + a fee per sale. Looking at the last Bango interim results gross margin looks to be c 1.8% so that 2.5% prediction already looks incorrect.  I would expect this % to come down over time as customers demand a bigger cut of sales. Whether the decreased margin will by offset by the increased EUS, I have no idea.
  • What's to stop a big player like PayPal coming into the market? I imagine they already have most of the infrastructure in place and I'm not convinced what moat Bango, or Boku Inc (LON:BOKU) for that matter, has in this area.

I've been proved wrong so far, so maybe I'm missing something, but there are enough concerns that make me think that whilst this company will be profitable in the long run, I just can't envisage they'll make enough to justify an already (in my opinion) stretched valuation.


A

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sambrook207 28th Nov '17 20 of 37

In reply to post #246448

Hi blondeamon, would you mind sharing the screen you mention?

Thanks,
Jamie

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blondeamon 28th Nov '17 21 of 37

Hi Mike, fair point but it's always best to witness the profitability first. Better to lose the first rally than being stuck on it.

Sambrook I am not sure if you can see my screen but here it is: https://www.stockopedia.com/screens/minervinis-trend-template-321293/

It is missing 2 of Minervini's criteria as Stockopedia does not support the tech to add them but it's close enough. I also added 2 rules myself around Market Cap, that it's between 20 and 950m.

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Thunderball 28th Nov '17 22 of 37
1

I have held Bango for a year, first buying at sub 95p and building a holding to a point where it is now my largest single position.

Whilst I respect Minervini and chart analytics as a process, it sometimes misses the fundamentals, and I have great conviction in Bango, despite their record to date might suggest otherwise. My conviction was principally stimulated by IC’s Simon Thompson’s bullish view on their prospects, and continued championing.

Historically Bango has promised but failed to deliver, and there are plenty of war weary previous holders who have seen promise come to nothing. But they appear to have passed a tipping point where they are now gaining traction, they are seeing significant take up of their payment platform in significant markets and importantly they have invested heavily in their infrastructure where they are now able to handle revenues of up to $5bn, their current revenues are up from £195m to £452m in the past year, and their current agreements are being expanded, and the DCB markets is growing. They have this month moved into profitability, and have circa legacy £30m tax breaks ahead.

With their costs fixed having invested in their platform for future capacity well above their current revenues, the commission they receive on transactions processed through their platform is 1.75% reducing with scale and volume to 1%, but with experts assessing they could reasonably hit $2bn revenue in 3 years, a conservative profit of £10m p.a. is not unreasonable, and with an expanding market eminently possible, and Bango’s market share growing also, the current market cap of £165m can be understandably be seen as going much higher as a tech stock - Simon Thompson suggests a share price at 300p is very acheivable in the short term, and it could go ballistic.

As a retality check, CEO Ray Anderson is eternally bullish, it is a competitive market and no operator in this market has a moat. But its a huge ever growing market - just check out how many Black Friday transactions were made on mobile platforms and where this trends is going, and Bango have some serious clients - Amazon Japan alone is a mega customer in the largest DCB market. £165m market cap seems to have plenty of room for growth.

It’s worth researching, but half year figures will be telling. I am already considering closing my position to preserve my substantial profit a la Minervini, ahead of the next earnings release.

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PhilH 28th Nov '17 23 of 37
3

In reply to post #246493

Hi Blonde,

There are some issues with your screen.
For example it spits out Moss Bros as a potential candidate but if you look at that chart and add 50 day MA, 130 day MA & 200 day MA to the chart you'll see that things aren't right.

Here's my Minervini Trend Template with a few extras added in https://www.stockopedia.com/screens/minervini-trend-template-252567/

Hope that helps
Phil

Professional Services: Sunflower Counselling
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herbie47 28th Nov '17 24 of 37
2

Why is it listed on the AIM? That's a red flag to me. I would be careful of Simon Thompson's bullish comments, quite a few have gone belly up, Globo was one, you know he has no money at risk?

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Thunderball 28th Nov '17 25 of 37
1

In reply to post #246518

Herbie47, there are plenty of great companies in AIM. Simon Thompson has plenty of winners as well as some inevitable losers, but show me any trader who calls them all right? But never take any advice without researching it yourself, you then only have yourself to blame.

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blondeamon 28th Nov '17 26 of 37

Thanks a lot PhilH, your screen is way better than mine so I hope you don't mind if I duplicate it. I wish Stockopedia allowed people to follow others screens but it's not possible.

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blondeamon 28th Nov '17 27 of 37
1

Agree about ST, he's an invaluable source for new ideas but in no way you should follow his tips blindly and especially on publication day. I use it as an excellent source of new ideas and yes he gets many wrong, most recently Accrol but it's not like anyone could have seen that coming.

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herbie47 28th Nov '17 28 of 37

In reply to post #246533

Yes but why is an american tech. company listed on the Aim?

Yes he has some winners of course, but where is his performance record? I think all tipsters should have to produce one. At least Paul has money invested and has over 200% gains in the last 2 years in his fantasy fund, yes of course people make mistakes. I'm just saying be careful.

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PhilH 28th Nov '17 29 of 37
2

In reply to post #246538

No problem, it's good to share ideas.
If anyone can code up a screen that can spot a channel breakout, ala a VCP breakout I'd be very appreciative.

For that to happen I guess (assuming all other Minervini Trend Template criteria are in place) that the 50 day MA would need to be flatish/slight uptrend (due to the consolidation in a channel) and then the price would be breaking out above that channel (so perhaps price is a x% above the 50 day MA) and perhaps it would be possible to identify increased volume. However, a volume spike on the day of the breakout might not be spotted until close of play (I'm not sure how useful that is).

Obviously we are constrained by the screener parameters so any ideas are gratefully received.

Cheers
Phil

Professional Services: Sunflower Counselling
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blondeamon 28th Nov '17 30 of 37

I am also trying to cross-check stocks that appear in multiple of my own screens but Stockopedia does not let you do that so I do it by eye. Minervini also says that you need to have many screens and constantly overlay them to find stocks that appear in as many as possible.

I use Naked Trader's screen in conjuction with Minervini's to find candidates for research. Robert Walters appear to be one at the moment.

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Ramridge 29th Nov '17 31 of 37
2

Following further analysis and research, I bought a small holding this morning. Here is why.

- The interim report in September actually said "Bango is on track to generate monthly revenue from EUS fees in excess of costs - generating a monthly operating profit at the end of 2017" This has now been confirmed as stated above by Mike888 and others.
- I have also looked at the forecasts on Stockopedia and they seem to be of the right order. A loss this year followed by £1.3m profit in 2018. It may even be on the low side.
- I believe that much of the platform development costs have been incurred and future capex will be below £1m p.a. Operational gearing should come into play in the coming years.
- a turn to first time profitability in 2018 together with increasing (maybe accelerating) EUS rates month-by-month will be positive catalysts in the coming months for the share price to move north.

All IMO and please DYOR

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ricky65 29th Nov '17 32 of 37
1

Just looking at the technicals, this isn't a Minervini stock at the moment. It would need to break out from the sideways consolidation (>274) and meet the trend template. Even then I don't like the multi-year resistance ~290. .

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Mike888 29th Nov '17 33 of 37
7

I have also taken a long position on Bango, which I guess shouldn't surprise anyone.

In respect to support and resistance levels, you have a point ricky65, personally I feel the company is now in a different place than it was when those resistance levels were formed so I'm hopeful that it will break through them, especially if we believe Investors Chronicle's research that has confirmed profitability on a monthly basis..

At the end of the day this is a small company with big ambitions, but small companies come with risk, so I agree with Ram that everyone should do their own research and be comfortable with the risks, and whether these align to their own circumstances. The next RNS from Bango will be very interesting reading I'm sure.

Finally a big thanks for all the contributions, more heads make better investments, and diverse opinions create a more rounded perspective. This was my first proper post on Stockopedia and I'm encouraged by the response, so I will happily post again if I come across something that I feel will be of interest to others.


Cheers
Mike

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donald pond 29th Nov '17 34 of 37
1

I'm new to Stockopedia as well and as mentioned have a small position in BGO. In terms of stocks with Minervini potential, I think few have it all and you need to monitor those which have potential as often shares with superperformance ability are new technologies or turnaround situations. I like to see a period of increasing revenues, improving profitability and ideally increasing margins, coupled with a strong uptrend. Another company which ticks a lot of boxes but isn't quite there on the chart is VLTY, another one I have a small position in.

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Funderstruck 29th Nov '17 35 of 37

As there is an element of technical analysis in this discussion it is worth considering there is virtually a Double Top; the Price therefore may fall x2 the drop in mid Aug. which would then coincide with a Support / Resistance level going back to 2010. It would therefore be circumspect now to wait for a clear break through the double top before piling in. However as a high % of stock is held by Funds, which have held on during this current phase , the pent up demand from PI's for limited availability will mean some will miss out & the others will pay a very much higher price, which could quickly reach Simon T's 300p ;........ if price does break up. (The price rise on some days has been 6-8%)

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gsbmba99 1st Dec '17 36 of 37
2

I'll copy and paste a couple of comments that I posted elsewhere. They said EBITDA profitability on a run rate basis not profitability (see below). Obviously, there's a difference. My main concern is on the durability of revenue % EUS margin. My suspicion is that the Amazon contract has extremely low margins for Bango.
"EBITDA breakeven isn't operational profitability. For 2016 they had depreciation of £0.3m and amortisation of development spend of £0.9m (excluding amortisation of acquired Bill to Mobile assets of £0.2m). They may be referring to "adjusted" EBITDA which would also exclude £0.4m of share based payments in 2016. If so, suggests currently operating at £1.6m annualised operating loss. They might, however, be operating on an operating cash flow positive basis since depreciation, amortisation and share-based payments are non-cash accounting charges."
""I have a really hard time understanding the trends with this company. 1H17 EUS was £92.3m and 2H16 EUS was £86.13m (£132.3m - £46.17m) for sequential growth of 7.2%. The revenue on EUS in 1H17 was £1.65m as against £1.64m in 2H16 for sequential growth of about 0%. Revenue as a % EUS went from 1.9% in 2H16 to 1.79% in 1H17. They generated an extra £10k on incremental EUS of £6.2m for revenue as % incremental EUS of 0.16%. Looking at the Equity Development numbers for 2017, they have EUS of £266m and revenue of £3.7m. That implies 2H17 EUS of £173.7m and 2H17 revenue of £2.05m. That equates to a reduction in revenue % EUS in 2H17 to 1.18%. Sequentially, that implies an extra £400k in revenue from an £81m increase in EUS equating to revenue as % incremental EUS of 0.5%. Is ED way below consensus? Why is revenue % EUS so unstable?"
"EUS doubled from 1H16 to 1H17 in part because they bought Bill 2 Mobile on 9 May 16. It had £55m of annualised EUS. Call it £27.5m per half year. So, £92.3m / (£46.17m + £27.5m*19/26) = 39.3% on a more comparable basis.

My point was more the volatility on revenue as % EUS and the fact that they appear to generate very little additional revenue from increases in EUS. From a historic perspective, it suggests to me that they potentially have tiering in contracts that bring revenue % EUS down over time. Looking forward, it could be the Amazon effect. It seems unlikely to me that Amazon would be offering a billing route that cost them substantially more than a debit or credit card payment."
" I spoke to Rachel Elias-Jones at length at a conference earlier this year. I asked her specifically what circumstances could cause the sharp decline in revenue/EUS that Progressive were forecasting. She mentioned the tiering of contracts (not a believable explanation) and then said that the company might, for instance, seek to take business away from a competitor. In such circumstances, she said, they might agree not to charge on the existing EUS and only charge on the incremental EUS they achieve by growing the EUS using things like Bango Boost. The results announcement talks a lot about "migrations" of existing direct relationships to the Bango platform and I wonder whether these "migrations" are what she was referring to. It might help to explain why the anticipated increase in EUS in FY17 yields such a poor conversion to revenue but more in FY18."

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Mike888 31st Dec '17 37 of 37
1

My subscription to Stockopedia finishes this week, an excellent site without a doubt and I may well be back in the future. I will not see the culmination of this post I initiated on Bango as my subscription will have ended when Bango emerges from Stage 3, which I am pretty hopeful it will.

If any of you are interested in following a blog that shows my trading techniques and a live portfolio please drop me an email to miketrader888@yahoo.com. The blog will show trades within an annual ISA llimit and will kick off at the start of the 2018 financial year. I will not use your email address for anything other that letting you know the site is up and running and it's link.

I wish you all the very best for the future and hope you have a great new year.

Regards
Mike

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