Small Cap Value Report Tue 26 Sep 2017) - TAP, MYSL, CARD

26th Sep '17 by Graham Neary

37 comments 14771 reads

Good morning! Paul's in Croatia, although that doesn't mean we won't be hearing from him at all. I'll be holding the fort until he gets back.

Taptica International (LON:TAP)

Share price: 346.5p (pre-open)
No. of shares: 61.7 million
Market cap: £214 million

Interim Results

This is an Israeli mobile (and now video) advertising firm, generating most of its revenues in the US. I've covered it a couple of times in recent months, as it announced some acquisitions expanding its international reach, and moving into video. Now we have the H1 results to June.

From the financial highlights:

Revenues increased by 27% to $65.6 million (H1 2016: $51.8 million)
Gross profit increased by 45% to $25.8 million (H1 2016: $17.8 million), with improvement in gross margin to 39.4% (H1 2016: 34.4%)
Net cash inflow from operating activities of $13.7 million (H1 2016: $4.5 million)

Also worth mentioning the outlook for the rest of the year: strong growth is anticipated which will be in line with market expectations

Digging a little deeper, the growth is said to have been driven particularly by Asia-Pacific. Taptica has offices in China, South Korea and Japan. It also opened an office in the UK during H1, while the $50 million acquisition it made last month is US-based. So it certainly has no lack of ambition!

As noted in the highlights, gross margin improved 5%. It seems to be getting better at what it does:

Cost of sales, which consists primarily of traffic acquisition costs that are directly attributable to revenue generated by the Company and based on the revenue share arrangements with audience and content partners, decreased as a proportion of revenue compared with the prior year due to increased technology efficiency gains resulting from improved use of the big data collected thereby significantly improving the gross margins.

That is the sort of thing that can become a competitive advantage, I think - when a company has so much data and becomes experienced at analysing it, new entrants face the double problem of not having the data and also not having the analysis techniques. See Google!

Taking a quick look at the statements, I see that the net cash inflow from operating activities is flattered by a $5.4 million favourable movement in working capital ($7.5 million receivables increase minus $2.1 million payables decrease).

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daveinthelakes

26th Sep '17

Takeaway from Taptica International (LON:TAP) analyst/investor call.

Two of the first three questioner's raised the data collection and the use thereof.

The CEO said that they welcomed the new EC regulations as in their view it would "clear the space" as they always complied with international regulation.
They said that they do not use browsers to collect data. They collect no data via cookies but only take data from the device ie they collect no personal data on the people using the device. They then direct advertising back to the device not the individual.

The above is not verbatim what was said so please listen to a replay of the call!

alihaouas

Hi Graham

please any comment on altitude as it is hard to fathom what is to conclude form the update with many thanks

ed_miller

Re the Taptica International (LON:TAP) investor call, I concur with your comments above and agree those were the most salient points. I'd add that their international expansion is a deliberate strategy to maximise revenue/customers since their customers tend to play in local (e.g. Japan, South Korea) markets.

Regards,
Ed

Carcosa

Trident, I said 'Sales growth' not absolute sales. Basically the business stalled.

iwright7

One other point came out in Taptica International (LON:TAP) questions which is very important. That is that 99% of their revenue is performance based - i.e. it is not coming from typical advertising/marketing spend, but from a targeted promotion that results in an actual sale.

It was a famous US store owner who once said; “Half the money I spend on advertising is wasted; the trouble is I don't know which half . As I understand it the Taptica International (LON:TAP) revenue model negates risk of loss and must therefore be attractive as a promotional tool, even if it risks driving the mobile end users nuts. Ian

rhomboid1

There were 2 issues, receivables were up & cash conversion of profits poor imho, non adjusted statutory earnings were down, if your business model is growth by acquisitions then netting off all the associated costs whilst claiming the revenues isn't likely to win everyone's approval. I like a lot about what they do & wanted to be reassured but wasn't. It's done well & may continue so to do but I'm guessing that's why the shares have fallen.

gsbmba99

If sufficient time, would also like to see Mortgage Advice Bureau.

ajn678

Hi Graham
Any thoughts on PCA Palace Capital, or do other readers have any views on this property play?
Many thanks

CliveBorg

Does anyone have any thoughts on the offer for Revolution Bars Group, which the company are recommending? The valuation still seems a bit low: What are the chances of shareholders being able to reject it?

dgold

I second request for Cenkos Securities (LON:CNKS)

Interesting moves in price of IQE (LON:IQE) down 12% at one point, now almost recovered. Seems to be disappointment re new Iphone and I note Apple suppliers have apparently taken a knock generally as a result but the falls over recent days do seem somewhat overdone, unless you assume that the price was over-hyped in the first place. I also note that this is the 29th most shorted share, with 5.34% being shorted as of yesterday. This is a little worrying because as Paul says more often than not the shorters know what they are doing.

Does anyone have any comments?

robinleggate

Re IQE. I imagine that after such a stellar rise in price, any fall will shake out a few sellers keen to protect their profits. I await the volume figures for today with interest. If low then the professionals aren't selling.

Howard Marx

The IQE valuation is backed neither by assets (P/TBV 9.4x) nor near-term profitability (FY1 P/E 35x).

Hence it's share price will be volatile as investor sentiment oscillates between risk appetite & risk aversion.

Probably best to calculate intrinsic value (based on medium-term sales & margin potential) and take advantage of Mr. Market's ever-changing moods.

kevfle

I think that IQE may have growth potential in the long term but it has been massively hyped which has until recently driven a big rise in the share price. There has been a lot of "discussion" on the ADVFN bulletin boards and a few dominant posters who have been trying to influence opinion, probably for their own gain.

Not surprisingly the shorters have latched onto this in order to drive the share price down to more realistic levels and I think this weakness in the share price is likely to continue until the Company is able to release positive news.

I still think the price move is extreme.Your pe figure is based on official forecasts but N+1 Singer for example have a "bull scenario" where eps is much higher than their official forecast (Paul referred to this I think).

Also, other companies like Boohoo.Com (LON:BOO) is also on a very high pe as is £G4M but such large oscillations on one day are very unusual. Purplebricks (LON:PURP) does have some big moves sometimes but I haven't noticed that it has had a huge move one way followed by a complete reversal the same day. That's why I suspect there is some heavy shorting going on, and possible the buyers squeezed out the shorters, for today at least. Volume looked high to me.

Aislabie

Thank you Rhomboid for these observations on PTSG. The receivables are indeed unaccountably slow but they were last year as well and I must try to see if there is an acceptable reason for this. I was probably giving them too much credit for the profit adjustments being justifiable.
I much appreciate your comments

Logic

I generally find that the more a share is discussed on advfn/lse.co.uk and similar places, the more dubious they are. This is probably due to the fact that the soundest companies tend to attract very little attention.

That said, I do not think much of the suggestion that one can seriously alter the share prices by posting on bulletin boards. Most shares have marketcaps that are simply too large for bulletin board messages to seriously alter. I think that a lot of people get far too emotionally attached to the performance of specific shares (often goes hand in hand with a lack of rules for investing and poor diversification). This results in fanatic praising of the benefits of a company and ferocious defense against any suggestion all is not well (amplified by the way people often behave on the internet).

Disclosure: I hold no position in IQE.

AnonymousUser252054

Well done to Taptica for having an investor call but personally I didn't think they came across very well. There seemed to be a divergence when they were talking about app ads being 'over 90%' of the business according to Hagai (so not blocked by the new iPhone OS) , but later the figure the CFO mentioned was '80%'. They went onto mute when asked about the potential EU (GDPR)regulations restricting data-driven ads (having had to ask for the question to be repeated), and they seemed confused at first. I was unimpressed by the 'we welcome more regulations' answer. I'd have preferred it if they'd said 'our important markets are Asia and the US, the EU changes won't hurt us too much'.

richardhall

Pity the TAP company website does not work. Otherwise looks interesting.

David Cheong

i had the same impression too that he wasn't ready when asked about gdpr. strange !

truegent

27th Sep '17

reminds me of globo !

Small Cap Value Report Tue 26 Sep 2017) - TAP, MYSL, CARD

Taptica International (LON:TAP)

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Graham Neary

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