Small Cap Value Report (30 Dec 2015) - MIRA

30th Dec '15 by Paul Scott

9 comments 11317 reads

Good morning!

It's very quiet today, as you would expect for this time of year. Although it's always worth keeping your eyes peeled for opportunities, as prices can spike up or down a lot in thin markets like this. I find it's quite good to keep a little cash on the sidelines, so that you can nip in and grab the odd bargain on days like today.

I see that controversial cash shell, Concha (LON:CHA) has bounced nicely in the last few days - presumably on expectations that another spectacular ramp can be engineered in 2016?

Ocado (LON:OCDO) has taken a bath in recent days. I increased my short position on that one yesterday, after reading an article that the Amazon Pantry service is being greatly expanded, following successful trials. So that's another strong competitor joining the already ultra-competitive and low margin grocery delivery market. The £1.9bn market cap makes no sense whatsoever, for a business that is only marginally profitable, yet hugely capex hungry - the worst of both worlds. I'm not meant to talk about shorts here, so let's move on.

I think we're likely to see a mass extinction of junior resource stocks in 2016, as few now have any reason to exist. I'm wary of bottom fishing for apparent bargains, as the remaining cash doesn't usually end up going back to shareholders. It's either effectively stolen by bent Directors charging consultancy fees to the company, consumed in advisers fees, or the Directors just find some other venture to reverse into the cash shell - to keep the gravy train rolling.

There is just one set of result out today, which falls within my remit, so let's have a quick look at that, even though it's a company which doesn't really interest me.

Mirada (LON:MIRA)

Share price: 6.1p (up 32% today)
No. shares: 139.1m
Market cap: £8.5m

Interim results to 30 Sep 2015 - this company describes itself as "the AIM quoted leading audiovisual content interaction specialist" - which means close to nothing to me. I think it's basically a software company, for set top TV boxes, or something along those lines anyway.

I did dabble in these shares a while back, but decided there was too much uncertainty, and too many missed targets, so sold out at about double the current…

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Glaws2

30th Dec '15

I think on principle any company which launches a product called 'Over the top' deserves to be on the bargepole list. Well, that and relying on Mexico as a major market....

Tortoise investor

I sold out of Mirada in the last few months, at quite a big loss. While it had a dodgy balance sheet it looked undervalued given its big contract with Telefonica (the roll-out of which then got delayed) and I thought with one or two contract wins the share price could really move. But I sold because of the lack of success it was making in winning new customers. If the product is so good then why did they not pick up any major new customers in the entirety of 2015? I should have sold out much sooner and set myself a stricter deadline for it to prove its business but lesson learnt there!

LittonOwl

Hi Paul,

Can I ask why you aren't 'meant to talk about shorts on here'? When most people have access to spread bet accounts, your opinion on short opportunities are of just as much interest to me as long opportunities (or otherwise).

I don't subscribe to the 'shorters are the root of all evil' viewpoint seen so often on BB's, and feel having some short exposure can give a portfolio a better balance, especially in volatile markets

Bouyed by your comments/analysis, I've shorted OCDO, AO. & Globo over the past 12 months, so going forward I do hope you are able to keep sharing your thoughts on short as well as long opportunities.

Richard Goodwin

31st Dec '15

It's house rules. Discussion of shorts tends to generate acrimony so Stocko decided it to be best for the SCVR not to do it.

That's a shame and not what I'd expect on here really.

Personally, I always like to hear both sides of the story regarding any of my investments.

rhomboid1

Hi LittonOwl

Basically as soon as Shorting specific stocks is discussed a bunch of rabid halfwits descend and make sensible debate impossible, so in theory I agree with you but in practice it turns into a total bunfight.

Happy new year!

cig

2nd Jan '16

Only stocks in which Paul has an active short position are off limits. There's plenty of stocks left that Paul doesn't like but where he doesn't have a position, so you can still build a short portfolio from reading the report if you so wish.

Paul Scott

I closed my shorts on Quindell and Globo actually, a while ago, just so that I could warn readers here about how risky the shares were. Luckily (thanks to a friend who nudged me), I managed to get a fresh short back on Globo days before it imploded.

P.

spike501

22nd Jan '16

Paul,

Good to see a view on Mirada and although I can't really argue with much of the overview I think there is a clear bull case here.

They have the large contract with Televisa which from a set up perspective has been capital intensive especially with the launches being delayed by Televisa - Televisa have been integrating a number of new cable networks and have been under investigation by Mexico's competition commission for market share in cable TV which went Televisa's way at the end of last year, so its clear to see where their priorities have been. While I don't think the risk of delay has gone, I think any delay would be weeks now and not months. Televisa over the course of the last 2 years will have spent somewhere around $10million with Mirada who will provide their full Cable TV operating platform, so I see the risk of Televisa walking away very small - it would delay their upgrade at least another 18 months based on information so far they seem happy.

The Televisa deal is a great deal as it is an already installed base so Mirada aren't necessarily reliant on the success of Televisa - although the forecasts for Mexico pay TV and Televisa are pretty good. Once live Mirada will simply collect $3-5 per box that Televisa replace old with new - for cable networks this is typically around 25% per year due to defects, customer churn and active marketing of improved product. Mirada are already rolled out in the smallest network which has 450k subscribers and in 7 months 60k have been upgraded to Mirada's software - about bang on the 25% per year market standard. Mirada get paid by box, not by subscriber and the existing rollout is averaging 1.7 boxes per subscriber.

The next two networks planned to rollout are based in Mexico City and are far bigger - approaching 2.4million subscribers between them - so assuming a similar box per subscriber that will be around 4million boxes. Mirada also stated they expect a further two networks that Televisa acquired to be rolled out next year - they come with a further 1.2million subsribers so around 2 million boxes.

In terms of financials..
For this year end 31/03/16 they updated they expect to hit forecasts - these are for £7million in revenues and £0.6million in PBT. This does rely on Televisa going live as it will be professional services revenue and back off licences so any delay does risk the figures for this year, although I expect they could still legitimately accrue much of the revenue. I expect if they do go live this year, they will beat revenue as most of it will be USD billed to Televisa so the weak GBP/USD FX rate will add a bit more.
This will make the balance sheet look much stronger - most of the debt is short term. Taken together with the placing net current assets should exceed £1million with long term debt of £1.5million, possibly even net current assets could exceed long term debt.

2017 expectation is for £8million in revenue and £1.8million in PBT. I believe the company must have a fair bit of visibility around this. They immediately benefit from more regular cashflow through licence fees as Televisa roll out over 4million boxes - this should provide £2.5million not even considering the next two networks. They should also have strong revenues from additional professional services for the final two networks and the OTT contract, both of which could provide further licence revenue.

2018 should also have a very strong platform as all networks should be live and rolling out so they could exceed £3million in licence revenue plus another £1-2million in OTT revenue - all of which is virtually 100% margin.

So I think this year, next year and probably the year after the company should be able to deliver profitability and positive cashflow. The next key is to win additional sizeable contracts to grow further and provide more diversified and sustainable earnings once the peak of Televisa revenue is past.

If they do achieve these expectations this is significantly undervalued.

Small Cap Value Report (30 Dec 2015) - MIRA

Mirada (LON:MIRA)

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Paul Scott

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