RAM – A Focused and Fast-Growing Force In Digital Outdoor Media

Introduction

Now with a pure focus, RAM Investment Group is something of a misnomer for this fast-growing Digital Out Of Home (DOOH) media and broadcasting company.

Almost two years ago, Tim Baldwin became the Chairman of this former shell with a vision of building a substantial company.  The period since has seen RAM first acquire 49.9% of TrainFX (with options to acquire 100%) and then, in Nov 2009, seize the opportunity to acquire certain assets of ASG Media on its move into administration.  Within weeks, Estates Media Partners had also been acquired from Frogmore Property Co Ltd (in exchange for RAM shares @ 9.75p) and the ASG and EMP businesses were then combined into a brand new RAM subsidiary, RAMVision.

RAM placed one of the final pieces of the jigsaw in Sep 2010 when, via a Reverse Takeover under AIM Rules, it completed the full acquisition of TrainFX.  On the same day, RAM finalised a £1.5m Convertible Loan Note which, together with an earlier £1m placing, was said in the 2010 Interim Results to provide sufficient working capital and capital expenditure for the Group going forward.

I think the significance of this event both in respect of the financing and forward earnings potential of the newly focused RAM Investment Group has been generally overlooked, the exception being analysis by GE&CR of the t1ps.com stable.  From a related direction, the SF T1ps Smaller Companies Growth Fund participated in the Placing and has added aggressively since the RTO, claiming an additional 1% of the enlarged share capital in the process.  In this video, Tom Winnifrith talks of his Fund's recent RAM purchases and offers his view on RAM's outlook.

Clearly, this is a turnaround situation for the Group as a whole but, importantly, one where the component parts and their DOOH media focus are entirely new.  Therefore, with little or no reliable pedigree, I would argue that history is of less use than current research and a good nose!  The 18 months of available financial data from shell to the present reflects the price paid to build the businesses but what of the sense that a positive tipping point has been reached and of a growing dynamic?

Current Trading and Prospects 

Recent announcements concerning the now 100% owned subsidiary, TrainFX, state that contracts have already been won for £2.5m and that TrainFX currently has tenders out for additional capital sales business with an aggregate value of over £5 million.

Of the £2.5m, TrainFX signed a contract in Nov 2009 for the installation of a Passenger Information Service on First Great Western and is projecting £1 million of revenues from this contract in 2010. This contract is for the installation of PICS systems on approximately 150 vehicles.

In May 2010 it was announced that TrainFX had signed a contract for the installation of a Passenger Information Service on the Southern operated Class 313 (EMU) fleet and is projecting £0.4 million of revenues from this contract in 2010.

In addition, announced refurbishment programmes for existing train fleets by UK TOCs have resulted in a pipeline of PIS/CCTV approximately 7 bids with a total value of approximately £15 million.  Sensibly, RAM has cautioned that while TrainFX is confident that it will win some of these contracts it also faces significant competition in these bids.

Nominated Adviser Libertas Capital has suggested margins of around 35-40% on technology/capital sales business.

Technology/Capital Sales Drive By EU Legislation

All the above-mentioned contracts and potential pipeline relate to technology/capital sales (see TrainFX below for definition).  Importantly, demand here is driven by a new EU Regulation 1371/2007 which passed into law in Dec 2009 and is creating a potentially huge retrofit market demanding upgrades.  At a stroke, the forward consequences for Train Operating Companies (TOCs) had a very significant bearing on TrainFX's earnings outlook and hence formed a large part of RAM's eagerness to acquire it.

In summary, this Regulation establishes rights and obligations for rail service passengers in order to make rail passenger transport more effective and more attractive.  Along with pre-journey and post-journey information requirements, of most importance to TrainFX is that TOCs must provide passengers with:

• information during the journey: on board services, next station, delays, main connecting services, and security and safety issues;

In my view, a clear distinction must therefore be made between this valuable "bread and butter" technology/capital sales business, driven by EU Law and the alternative "DOOH on Trains" (see TrainFX below for definition) that TrainFX is now ready to start installing on predominantly South-East commuter trains where it has won exclusive contracts.  It is currently negotiating on external Group funding arrangements to facilitate this.

Regarding the latter, it is of particular note that it plays no part in the current upbeat revenue/earnings forecasts but is described below as "TrainFX’s primary business proposition".  Based on an increasing platform of installed screens, a growing stream of advertising income is expected to consequently accrue.

I note also that RAM has indicated that, in principle, this technology is applicable to other public transportation systems as well.  In which regard, the EU adopted proposals in December 2008 on passenger rights in sea and inland waterway transport, and international coach/bus transport.  Once again and in each case, the proposals state that the Regulation should include the receipt of information regarding the service during the journey.

Business Wins by RAMVision

On Twitter, RAMVision describes itself as "UK's fastest growing media owner and Digital Out-Of-Home specialists.  Broadcasting to over 60m people per month through our Mall digital media networks".  This looks fully justified following recent news that it has won substantive new outdoor digital advertising contracts with shopping malls throughout the UK and has more recently announced  that it has been appointed as the official out of home media partner and sponsor by the organisers of Power Snooker.

RamVision is to help promote this major launch of a new Snooker concept with their enhanced package of digital media applications.  The organisers hope to revolutionise the traditional game and introduce new audiences and fans to the sport throughout the world.

Ram Vision effectively moves into broadcasting by promoting the countdown to the event in every major UK city via their network of major shopping malls.  The intention is to pioneer the first ever same-day edited sports package by streaming coverage to over 500 Iconic and walkway screens.

New and existing contracts include trading relationships with major mall-owning property groups such as Grosvenor Estates, Land Securities, Hammerson, Henderson, Capital Shopping Centres, Capital & Regional and Frogmore.  RAMVision’s current portfolio has representation and access to over fifty malls. Four of the top five UK shopping centres are now within the RAMVision network.

The 2010 Interims state "We believe the business is now soundly based with a clear business plan and following recent contract awards we are now selling off a substantially upgraded estate from the business and assets that we acquired at the end of last year. Much has been achieved in a relatively short period of time and the company is now being applauded within the industry for service and technological lead. We believe that the company is well placed to be a market leader in screen advertising in shopping malls"

As for financials, I sense the Power Snooker event is important more for the exposure of the new RAMVsion brand and thus for the future business it would be hoped to generate from this important association with ITV as a major broadcaster.  On the other hand, the earlier announcement rgarding new contracts says they "are expected to deliver new additional annual revenues of GBP1,275,000 reflecting an average annual forecasted income of GBP75,000 per mall per annum".  On which basis, with over 50 Malls on the current network, my own calculations suggest forward annual revenues for RAMVision alone in the region of £4.4m.

Based on the above, there seems clear scope for the profitability of both businesses in 2011 as indeed the management stated in the 2010 Interims.

Market Capitalisation

At the time of writing RAM has a current market cap of less than £6m. 

Earnings Forecasts

While the management has indicated that both businesses are expected to be profitable in 2011, they have given no indication of quantum at this stage.  However, Rivington Street Corporate Finance, the Company brokers are again part of the t1ps.com stable referred to and referenced above.  We must make what we will of their Fund's aggressive buying of RAM.

The Company is only now beginning to get its adult legs; clearly new business continues to be won on both sides of the house; and there is no relevant "previous" to refer to, so detailed and accurate forecasts are pretty near impossible.  That said, credit to the t1ps.com people for having an unofficial stab at it.

Broad brush, these "unofficial forecasts" see maiden profits in 2011 of "somewhere between £1m and £2m, year after, perhaps £3m".  This is seen to equate to an apparent 2011 P/E of "3? 2.5?  Falling to less than 2 the year afterwards".

Morning Star shows the average P/E for RAM's newly-entered Media Sector as c. 13 which appears to leave plenty of scope for SP appreciation over the coming period.

Director Dealings:

The Directors added a combined 3.75m in the Jul 10 Placing and Tim Baldwin, the Executive Chairman, has since added a further 600k @ 5p.

RAM's Core Businesses:

 Watch the Video 

TrainFX has developed a product range of digital screens and two-way communications technology for the rail market.  Branded as the TrainFX Passenger Information Communication Security (PICS) and approved by all the relevant UK regulatory bodies, TrainFX is a LINK-Up approved supplier in this industry.

TrainFX’s suite of systems has been designed to meet Railway Group Standards.  The Office of Rail Regulation is responsible for regulation of health & safety, the market and Network Rail and the rigours of achieving the Railway Group Standards effectively create a regulatory barrier to entry for potential competitors.

TrainFX’s business model is based on two income streams:

 • Digital Out Of Home on Trains

TrainFX’s primary business proposition is to supply a news and passenger information channel to its self-funded equipment installations in rail carriages on commuter trains into London.  The company’s target market are the Train Operating Companies (TOCs) in the Greater London commuter market that represents approximately 800 million passenger journeys per year.

• Technology Business

TrainFX’s second business is capital sales of its PICS systems to TOCs as a stand-alone or integrated hardware and software solution to satisfy their needs in relation to passenger information, security and train-borne communication.  In principle, this technology is applicable to other public transportation systems as well.

The Current Opportunity

PICS has proved attractive to TOCs and offers TrainFX the opportunity to develop both an advertising driven media business and a capital sales driven technology business.  Since it is already winning contracts, I have covered the EU Regulation driven "capital sales" opportunity above, under Current Trading and Prospects.  The following relates mostly to the DOOH on Trains opportunity, apparently ready to go but subject to an external financing arrangement is yet to be announced.

Advertising Driven Media Business 

The advertising industry is currently undergoing a period of major adjustment as the main stream advertisers recognise that television, the traditionally dominant medium, can no longer deliver the certainty that target audiences will be addressed.  This has produced a significant growth in new advertising media and particularly outdoor advertising which has seen the greatest growth of all.  Within the outdoor sector, advertising in the transport environment has proved particularly attractive as it combines significant “dwell” periods for passengers to absorb advertising. 

The Commuter Market 

RAM believes that the untapped advertising market in trains represents a very attractive proposition to global, national and regional advertisers. Rail commuters represent a captive audience with passenger surveys finding 69% of commuters were predominantly in the advertising demographic profile of ABC1’s.  Many leading brand owners consider ABC1 commuters to be a key target for many of their brands but they are difficult to reach by traditional advertising routes.

A fully independent survey was carried out by the marketing and research consultancy, JGMRC Limited (“JGMRC”), on main lines into London with its recommended course of action to introduce the TrainFX service. 

Importantly, the audience for an in-train television style service is captive with an average “dwell” time of 40 minutes.  In a current advertising environment in which customers are increasingly willing and able to ignore advertisements either by channel hopping or using compression technology (Sky+ etc), this factor is of great interest and value to advertisers.  

RAM is confident that TrainFX can convert this interest into early commitments to sponsor channel segments and/or commit launch advertising clients.  The out-of-home market, a category used by the advertising industry, in which TrainFX will be included, is increasingly moving to digital media: 

CBS Outdoor is committed to spending in excess of £70 million on digital assets for the London Underground contract. 

JCDecaux is managing significant digital advertising at London’s Heathrow airport. 

Clear Channel is making a large investment in digital “48 sheets” on roadside installations. 

The market for commuter passengers comprises approximately 1,100 million journeys per year with the London and South commuter market accounting for some 784 million of these. 

Advertising Revenue Generation 

The advertising industry is currently undergoing a period of major adjustment as the main stream advertisers recognise that television, the traditionally dominant medium, can no longer deliver the certainty that target audiences will be captured. This has produced a significant growth in new advertising media such as the digital out of home space. 

RAM believes that advertising in the DOOH transport environment is particularly attractive as it combines significant dwell periods for passengers to absorb advertising. Revenue generation is based on TrainFX’s assumptions as to its price per thousand passengers viewing the system (“CPT”). 

The typical demographics of rail commuters are skewed towards people 16-34 years of age and employed, which are some of the most desirable with advertisers.  65% of passengers are commuting or travelling on business (often completing the same return journey 5 times per week) with the remaining 35% travelling for shopping or leisure purposes. 

TrainFX’s projection of advertising revenue is based on an assessment of this medium as a hybrid of a television channel and digital media. The pricing within the business model has also been validated with advertising experts and through its sister company, RAMVision. 

TrainFX plans to use a UK market research company to carry out impact and retention surveys among passengers to provide data which is expected to reinforce the advertising strength of the medium.  Regular measurement of passenger numbers and their demographics together with independently verified government statistics on rail use will assist TrainFX in maximising its advertising potential.  It will provide advertisers with a robust assessment of the impact of their adverts and an indication of the value generated by their campaigns. 

RAM believes that TrainFX’s system has the potential to become one of the most authoritative media available for DOOH advertisers, due to its measurability of audience reach.  The content delivery system will include management software to provide an “as run log” to show which advertisements played and when, where such information is required. This can potentially be linked with passenger counts in trains and individual carriages at that time, allowing exact determination of how many people have been exposed to any given commercial. 

TrainFX’s network will have the potential to target over 784 million passenger journeys with over 525 million viewing hours per year capturing over 875,000 people per day.  These targeted people comprise a high proportion of passengers who are commuting to work, a traditionally very hard audience to reach with a lower than average propensity to watch TV at home.  Additionally, there are other opportunities to reach shoppers, casual travellers, weekend travellers, evening entertainment travellers and other audiences.

RAMVision is a digital out of home media specialist.  Broadcasting to over 650 million shoppers each year, the Company believes that RAMVision is currently the prominent provider of landscape and the larger cinema style format digital screen media, identified as "Iconic", screens at shopping malls across the UK.

Research has shown that shopping malls in the UK have continued to attract visitors as consumers are showing a stronger preference for shopping malls than the high street.  With Digital Media now coming of age, brands are keen to contract with state of the art communication capability in order to reach their target audience in real time and have the ability to react to major events which impact on their brands in seconds. 

Partnerships

RAM believes the future of this business is the development of partnerships able to contract onto its network. Capital & Regional has agreed with RAMVision to continue on the same contractual terms as when the screens were operated by the ASG Group.  RAMVision is currently focused on managing the existing assets within the network whilst also identifying investment opportunities in Iconic screens as well as new Iconic locations.  Its demonstrable recent success augers well. 

Advertising Revenue 

RAM Vision will derive advertising revenues from national, regional and local sales. The in-house sales team is currently demonstrating its ability to attract major international brands to place national campaigns on the RAM Vision network. 

Regional sales are placed both with the in house sales team and through the client services personnel. RAM Vision has developed relationships with two well established specialist sales companies whose role is to seek to derive an advertising income from local area businesses. Brand acquisition has continued to be the success story with brands such as American Express, Coca-Cola, Disney (all of which are top 20 global brands) Calvin Klein, Next, House of Fraser and Cineworld all booking campaigns on the network. 

The larger adverting sales agencies such as Posterscope Limited, which claims to place 43% of all out-of-home campaigns in the UK, continue to recommend RAM Vision’s mall screens for a selection of their campaigns such as bookings for clients including Coca-Cola. 

RAMVision also works with Kinetic Worldwide (“Kinetic”), a global sales agency with an established presence in the UK which has, over the years, placed out of home campaigns for well known brands. Kinetic booked the American Express campaign with RAMVision through booking agency Mindshare. 

RAMVision is well set to profit from the emerging commitment to the digital out of home opportunity. The Directors believe that the self contained infrastructure of National, Regional & Local Sales Teams, Customer Support Teams, I.T. Support, Creative Design Studios, Remote Management Software, bespoke hardware and a dedicated installation team have ensured the credibility of the brand, the business and the product.

Objectives and Strategies: 

Management believes that within a relatively short time span, the Group can become a leading player in digital signage in railway commuter trains in the UK and in shopping malls. 

In Trains this is being achieved through the technology business i.e. capital sales of its PICS systems to TOCs as a stand-alone or integrated hardware and software solution, demand being driven by EU Regulation.

Once the separate DOOH on Trains programme gets underway, based an increasing platform of installed screens, a growing stream of advertising income is expected to consequently accrue.

Furthermore, TrainFX is now primed to sell its technologies for upgrading passenger information, security and train management information into markets outside the UK.  It is expected that such market entries would be achieved with or through partners in the local markets and RAM intends to support TrainFX in winning maximum market share.

In Shopping Malls:

this is being achieved through the extension and upgrade of its existing network.  New contract wins are referred to above.

In General:

In the medium term the Board believes the Group has a strategic consolidation opportunity. The Directors believe the Group will become valuable by developing a significant media estate with a verifiable footfall.  Its captive audience will have both the magnitude and the quality profile that broadcasters and advertisers alike are seeking to reach. 

With the RTO process now history and with its consequent pure DOOH Media focus, RAM intends for the enlarged Group to monetise its legacy non-core assets for the further development of its two operating subsidiaries.

Conclusion

Whereas RAM Investment Group continues to bear the name of it former shell, the Company itself is unrecognisable from that time.  Over a relatively short period and in difficult conditions, RAM has been transformed into a fast-growing, pure-play DOOH media and broadcasting Company.

At present, the Company has not had a full accounting year with both core companies in 100% ownership and yet is already showing the first signs of meaningful and profitable business wins to the extent that RAM is already believed to be pressing fast towards substantial and sustainable profitability from 2011.

That said, it's still very early days and RAM must continue to deliver further evidence of positive progress over the coming period in order to justify the soothsayers' challenging forecasts.  On the other hand, there is mounting evidence that their judgement has a sound basis and, personally, I share their optimism.

The RAM Investment Group share price looks to have been a victim of circumstances and for those willing to view the available evidence and take the necessary leap of faith that the early "unofficial" forecasts will turn out somewhere near the mark, the current mid price of 4.75p (c. £5.75m market cap) could represent an outstanding buying opportunity.

Caveat

The author/compiler of this article is a shareholder in RAM Investment Group.