Stock Pitch - Tremor (LON:TRMR)

hmm - As some of you will know I have been an advocate of Tremor International (LON:TRMR) since they were sub 100p so a good return BUT a very strange reaction to the US IPO.

Ok, it's on a horrid day for stocks but nonetheless - an upscaled IPO set at $19 that is 100p below the existing UK share price of 800p and then falls $1.50 straight from the bell.

Has lots of cash on b/s and raises another $100m - why? Has anyone seen any new presentations or research on this post IPO?

I want to understand (1) why they raised so much cash (ps I've seen the official explanation and all that says is "because we can" in my opinion and (2) why upscale and kill the share price............ doesn't make sense to me. Why not downscale and create secondary demand?

This business probably does EBITDA of $100m+ this year so trading on an EV of 8 or 9....... that's just odd

Ipo seems to have been up scaled due to demand https://www.globenewswire.com/...

Since I hold it was really nice to see it rise today.

The issue is still, it has $130m in cash, and it's raising money on the IPO in the US. What's the associated deal?

As Ed said - not for widows and orphans. But on second thoughts that's a financial advisor phrase and they'd have us holding 40% bonds..

LOL

Nice to see a +16% rise on the day and a clear chart breakout to new highs. I like to see a volume confirmation in a breakout and volume isn't that strong today - but volume only confirms a trend, it doesn't define it.

I have owned Tremor personally for some time and bought more in the recent mini-correction at the 10 week moving average. I do not perceive of this as a core holding - but I now hope to see PEAD "post earnings announcement drift" take effect.

There does seem to be a lot of polarised sentiment around Tremor amongst private investors (see twitter and comments here). As mentioned in my StockSlam last week - this is a high risk share (Highly Speculative RiskRating). While momentum is strong with it (fundamentally and technically) - I've seen the rug pulled from shares like this plenty times in the past - so risk management is key. Negative or positive news on the US listing could see the share move 15% in either direction. So volatility is likely.

Tremor has announced that it has filed for its NASDAQ ipo shortly after announcing a stellar trading update. There will be fireworks in this stock over the next few weeks IMO. 

The following is written simply as a service and as a devil's advocate for Stockopedia subscribers. I no longer hold Tremor - my last holdings were sold about 6 weeks ago . For reference my first holdings were purchased around July 2017. I have no current intention of repurchasing Tremor shares.

As readers have indicated the Tremor story is exciting. People have seen the humungus success of Google's (Alphabet) internet advertising, the internet is increasingly dominating our lives and the service Tremor provides is jargon filled and perplexing to most people including many highly intelligent investors (not me).

Readers should also be aware that I can be and often am wrong.

My first problem was that it was difficult to see how Tremor could get the critical internet tracking data on potential advertisers. Why should any website allow a third party to get access to cookies or other data on visitors to its site and make money out of them ? What was in it for them ?

I managed to arrange a one to one meeting with the then CEO in Tel Aviv. I came out about 45 minutes later still perplexed and ignorant. The then CEO later resigned from Tremor (or Taptica as it was then) for questionable business conduct related to a previous business role - nothing to do with Tremor/Taptica.

On the point of Tremor getting tracking data readers should note that both Google and Apple are about to or have recently introducing substantial limitations on advertisers and others tracking website viewers (but I understand not themselves) ..The consequence IMHO is that this massively impacts the quality of the market data that Tremor can offer its advertisers. Detailed profiling of a target audience will be handicapped so damaging the rates one can charge.

Following on from the above why shouldn't Google and Apple each offer the same service that Tremor does. They now have far better data then Tremor - and the market is easy for them to enter and can be vey profitable.

Another elephantine player in the internet advertising market is Amazon which owing to its merchandising services has a massive amount of data on its site visitors which Amazon is trying to monetise.

Anyone seeking to compete against Amazon, Apple and Google in the internet advertising industry is either very brave or foolhardy. My limited funds lead me to pass on this challenge.

Another point of concern is that Tremor now offers both Sell Side and Demand Side platforms. There is a potential conflict of interest here. How is this being managed ?

One of the reasons I held Tremor shares for years, despite being in substantial losses for a few years, is that Tosca, a very savvy and credible Hedge Fund , was building up a large holding in Tremor and was increasing it to 29%. (The significance of this figure is that under stock exchange regulations once an investor gets to 30% he/she has to make a mandatory offer for the whole company at the highest price paid in the last 12 months. Just under 30% is the effective maximum holding for an investor)

A few months ago Tosca started dumping stock on the market and is now down from 29% to 16.6% as of 23 April 2021. The counterparty apparently helping relieve Tosca of its millions of shares (remember that the Tremor share market is quite thin - it took me months to dispose of my holdings - sometimes only a few thousand or 10,000 could be sold in a day without damaging the price) seems to be a Saudi Arabian fund. Saudi Arabia has a number of qualities- investment perspicacity is not generally considered one of them - a common characteristic when money is no problem.

Tosca is as said, a savvy investor. If the outlook is as good as is made out why is Tosca trying to exit , in an orderly fashion hell for leather - but without impacting on the price? Perhaps they have found an even better investment for their money ? Perhaps and perhaps not ?

Dividends - or the lack of them, is also a concern. Dividends are sign of expected repeated profitability and cash generation. Tremor ceased dividend payments in 2017 . Given the apparent cash generative characteristic of its business then why have dividends not been reinstated ?

Tremor has adopted a share buyback scheme. However the actual number of shares repurchased are in my view, minimal compared to the cash balances held and the cash generation implied or expected of the company and minimal in relation to the shares in issue.

A lot has recently been made of Tremor's competitors in the USA. As far as I am aware all except the giant - the Trade Desk , are losing and have consistently lost money. Advertising in this business is about scale : where is the Tremor competitive advantage versus The Trade Desk ?

Tremor is about to be quoted in the US or NASDAQ market by (as I understand it) issuing ADS (American Depositary Shares) against new Tremor shares. If Tremor adopted ADRs it could buy shares in the UK market and then issue ADRs in the US. However this would be a slow process (unless, as a suggestion, Tremor can persuade Tosca to sell it some of its millions of shares possibly about to be put on the market. )

The significance of the issue of ADSs against new Tremor shares is that if say 20% new Tremor shares are created and issued in the USA then Tremor's earning per share drop by 16% and the PE increases by 20%. Just to compensate for the share dilution and the resulting higher PE, the US quotation needs to raise the UK price 20% . Will it ?

One way to avoid this is for the USA new share issue to be sanitised by the equivalent number of shares being purchased and cancelled in the UK. This does not seem to be in prospect from what I have seen.

Well -there it is - good luck to all my patient readers.

I have held this share since the days of Blinkx and it's a 'reverse' coffee can stock for me. It reminds me by looking at my heavy losses (over 90% at one point) and that just by having an interesting story, great opportunity in the market and propriety software does not make a good company without the necessary execution.

That said - I've watched the price rise and I'm almost in profit! I think it's a case of perhaps being sucked into the stock rather than the strategy, something that I look at now, more than the actual goods a company provides.

Thank you Jack for an interesting write up.

My investment in Tremor International (LON:TRMR) goes back to December 2017 with a brief hiatus in mid-2020 when I sold out of the position, at a huge lost, in my March meltdown.

I have done more research and written (not nearly as well as Jack) on Tremor than any other stock, mainly because it has been and continues to be my most uncomfortable holding (possibly a reason that I should not be in it but that is another story). The reason for the current discomfort is the continued management sales and the timing of them. For example, on 30th November 2020 the company released an RNS:

"...the Company expects trading for the year ending 31 December 2020 to be significantly ahead of the ranges outlined in its October 2020 trading statement...."

Then on the 16th December the CEO Offer Druker sold 700,000 shares at £3.30. If the company is doing so well why was he selling (that sale alone has cost him £2,527,000 at the current 18th May share price). There may be good reasons for this but it still annoys the heck out of me.

So why am I still holding? I explain this in more detail on my blog at https://investing4value.wordpress.com/2021/03/ but it appears to me that the investment case remains intact and that a £12.00 (or even much higher) share price in the short term, 12 to 18 months, is a good prospect. £12 would see me come out in profit on the whole sorry Tremor saga.

As davidjhill points out in another comment here:

"Last year the adjusted EBITDA was $60m and I can see that being over $100m for this year. Strip out $100m+ of cash and the EV/EBITDA is really only just above 10* this year’s earnings. That actually makes it look even better value. One can argue that the $45m depreciation associated with the goodwill is real but in reality it is all sunk cost."

I normally don't like using EBITDA as in my opinion ITDA are really costs in much as wages, heat and light etc but in the case of Tremor International (LON:TRMR) I think it is reasonable to use an adjusted version of EBITDA (in effect FCF) where you don't adjust for stock based compensation or acquisition related costs (after all if they continue to be acquisitive each year these are not one off costs) you end up with an EBITDA figure close to cash flow.

Free cash flow before share buy backs last year was $39.7 million. Project FCF for 2021 is $52.5 which gives a price to FCF of 25. if they grow FCF by the same amount as last year then on today's share price this drops to around 13.

With an anticipated re-rating (pipe dream?) because of the NASDAQ ADS’s (Tremor has not gone for a pure NASDAQ listing) the £12 to £14 price target is completely reasonable. It should be noted that companies in a similar space £TTD Appscatter (LON:APPS) and £MGNI are on 2021 PTFCF of 83, 82 and 27.

I will end on another negative: Debtor and creditor days. The large increase in debtor days and creditor days gives me cause for concern and I am struggling to see a reason for it.

Though these are predicted to come down in 2021 and 2022, they are still almost double the 2019 figures. And bad debts written off have increased 44 times though they have halved the provision.

Some pointed out (via twitter) that this seems to be an advertising thing with the likes of WPP, TTD and MGNI all have a very large debtor days number. TTD’s is 691 for example.

But it is still to me an anomaly, which I cannot figure out. Maybe somebody here has an insight?

I hold Tremor International (LON:TRMR) at 5% of portfolio

The relative valuation argument here is strong even if it is less so than a few months back as Trade Desk and Magnite have retraced @ 50% since then.

The thing which is making me ponder at the moment is as far as I can see (not my area of expertise) the NASDAQ listing will involve the issue of new shares. As they patently do not need funds it suggests that a "deal" of some sort is in the offing as well.

Anyone have any thoughts? Have I got the issuance of shares wrong?

Phil

(I hold)

Hi Jack - one thing you didn't mention is that the depreciation associated with the intangible goodwill is somewhat masking the real numbers here.

Last year the adjusted EBITDA was $60m and I can see that being over $100m for this year. Strip out $100m+ of cash and the EV/EBITDA is really only just above 10* this years earnings. That actually makes it look even better value. One can argue that the $45m depreciation associated with the goodwill is real but in reality it is all sunk cost. Better to value this one on free cashflow I tend to think.

I bought Tremor International (LON:TRMR) at around 100p (some above, some below) and haven't taken any off the table - nor do I plan to for some time yet.

I think the game changer would be a major ctv player doing an exclusive deal similar to the news corp one to outstream  ad space on their video library. Can you imagine if at&t discovery or Disney etc chose tremor as an exclusive ad tech partner.   As I understand it in a post ios14 world there are benefits in media cos doing exclusive deals with full stack adtech so as to allow full tracking of customers…

"scalable end-to-end advertising platform"; 

"This company has built an end-to-end programmatic video advertising platform which is now fully integrated"

It has assembled an automated marketplace for advertisers & publishers that uses data-driven technology to deliver impactful brand stories for audiences across the globe.

 "the business model can be hard to grasp with lots of jargon"

Yup.

Thanks Jack ! Fantastic and comprehensive write up on Tremor International (LON:TRMR) - I hold. Not without risk of course but will be very interesting to see what happens immediately after NASDAQ listing.

Welcome to the  TRMR club. Not sure what it is but your last couple of buys are stock I hold , WATR now this one. 

I find TRMR a fascinating company which as always you have summed up very nicely above. Risky - yes but the opportunity at this stage seems brighter than the risks but volatility I suspect will continue