Stock Pitch - Tremor (LON:TRMR)

17th May '21 by Jack Brumby

27 comments 9011 reads

Tremor International (LON:TRMR) has been through all kinds of historical fits and starts but is now firmly focused on the structural shift towards online video advertising. This company has built an end-to-end programmatic video advertising platform which is now fully integrated following some strategic acquisitions.

That means Tremor adds value to both advertisers and digital publishers. Now it finds itself at an important inflection point with the potential for rapid profit growth.

The group will shortly list on the Nasdaq, where its listed peers are valued on higher multiples despite lower growth rates, paving the way for a rerating in the short term. FinnCap (Tremor’s house broker) has a price target of 1,200p. That’s up from 700p just months ago, and is the latest in a series of recent upgrades.

It hasn’t always been plain sailing at this divisive stock though. There’s a colourful past here, along with name changes and business model pivots. But does that mean the market is slow to realise the operational progress and earnings growth potential? Or is it right to be wary?

Tremor has been buying back shares at current levels, but directors have been reducing their stakes. As ever, it’s a mixed picture with both pros and cons.

Tremor was pitched to the Stockopedia Investment Club on the 4th of May 2021 at 740p.

Summary

Bull points: scalable end-to-end advertising platform; high gross margins (FY20: 83%); proprietary technology and data insights; global scale and opportunity; operates in structural growth market; content, data, and relationships with brand owners and websites create barriers to entry.

Bear points: chequered past; the business model can be hard to grasp with lots of jargon; new online advertising market brings technological and regulatory risks; US peer group comparisons might reflect an expensive US tech market; directors and major holders have been selling shares.

Profile

About the Stock:

Tremor International (LON:TRMR), is a global leader in video advertising technologies. It deals in programmatic advertising and, following a few strategic acquisitions, it might now find itself at critical mass.

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

You’ll find it listed on the AIM market in the Consumer Cyclicals sector and in the Media & Publishing industry group but, with…

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Albertos

18th May '21

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)

Jack Brumby

Hi Zoiberg,

No two ways about it, simply describing Tremor International (LON:TRMR) is a challenge. The company itself doesn't make it that easy with its own descriptions, in my view.

What's more, even if you think you do understand it, a lot of the value is derived from machine-learning algorithms and other technology that you will likely never see or be able to properly evaluate.

There are three key parties involved:

Brand owners that want their adverts to be seen by the right customers, which the demand side platform (DSP) caters for. Eg. Land Rover.
Digital publishers (websites etc.) with advertising space to sell, which is what the supply side platform (SSP) caters for. Eg. Skysports (no idea if Tremor does actually have a relationship w/these examples by the way)
Tremor sits in the middle, making optimal matches between advertisers and websites very quickly via proprietary algorithms using its data management platform (DMP)

This is the 'end-to-end automated platform' that Tremor has assembled via acquisitions and investment. The DSP, SSP, and DMP.

Brand owners get value as their adverts are distributed intelligently and have a higher chance of reaching the intended audience based on Tremor's data. The return on investment improves.

Digital publishers get more value as their advertising space is consequently more valuable to advertisers, allowing them to realise a higher yield on this digital real estate.

MichaelFBS

I think that the issue of ADS's may involve retirement (buy backs) of shares on the LSE but I am not 100% sure of this. A good explanantion was written up by somebody recently but I don't recall who or when! Trying to track it down at the moment.

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

malcolmbell

Post IOS14 Media players like News International and Disney need to offer the ad outselling and media catalogue on an exclusive basis to full stack players like Tremor where ad buyers can legally benefit from full customer characteristics. Less "complex" adtech players are not set up to enjoy this benefit.

willhampson

Yes, I had the same view. If you compare Tremor's registration statement with other U.K. companies that have recently dual-listed it seems pretty clear that they intend to issue new shares. I don't see how else the following can be read: " The number of ADSs to be offered and the price range for the Proposed Offering have not yet been determined."

This obviously is not necessarily a bad thing and worked well for Renalytix Ai (LON:RENX), for example, when they dual listed and raised at the same time via a global offering. It's just a bit annoying not knowing the price as that is holding me back from adding now. All the best, Will

Zoiberg

19th May '21

Jack, Thanks for taking the time to reply. I can now see things a bit more clearly. I will re read n the morning.

Harry Hindsight

Tremor International (LON:TRMR) - discussed on the SLAM (Stockopedia stock slam - real people putting up real views. A volatile spread bet not suitable for widows ...

RajPaulD

21st May '21

Hi Jack , many thanks for the description,.

Doesn’t this mean that in summary Tremor is competing with the likes of Google and Facebook, which operate in pretty much the same space (sitting between content producers (ie advertisers) and content consumers (ie the public)), and derive most of their revenues from that?

Not sure I could back a small company that competes against those giants.

I may be wrong here so would be keen to hear peoples thoughts.

Thanks

Viz

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.

Star8

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.

22nd May '21

This misses the fact that Tremor is almost entirely Video focused so the cookie issue is not relevant. The huge game changing opportunity is 1) the consolidation of CTV providers, 2) the fact that most of the programmatic advertising is not yet embedded in the big guys offer, 3) full stack adtech has the advantage in the cookie less world, 4) large adtech players are up for sale so that they can be seen as independent from the media companies - there is one that is the perfect match to merge with Tremor in exchange for a Nasdaq listing & could double Tremor's scale overnight and multiply potential upside for shareholders (eg IPO 15 % of shares, raise debt to finance the bulk of the purchase, like News Corp leave the seller with a small % holding in Tremor or a large holding if it wishes to benefit from the rerating upside in the shares) 5) in short if the Nasdaq listing does raise cash it is only due to a large deal likely to be announced at the same time as Tremor does not need the cash and is focused on shareholder returns...

Brian Foster

25th May '21

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.

Sully8786

Fingers crossed Brian - did some research over the weekend and added yesterday. Pleasant to see the shares up after I bought something :)

Looks like EBITDA margin (while at the upper end of guidance) came under some pressure given the revenue beat - something I'll need to look at in more detail T/W the comments below.

Regards,

Dave S

Edward Croft

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.

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

14th Jun '21

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

davidjhill

18th Jun '21

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

kind

19th Jun '21

Yes I would really appreciate someone knowledgeable about this giving a explanation of yesterdays IPO if at all possible

gus 1065

I wouldn’t presume to claim to be knowledgable, but having a relatively small position here I’m not overly surprised about the Tremor International (LON:TRMR) share price movement yesterday. When the US IPO was announced in early March, the share price was about 520p. It peaked in the last week or so at about 780p, a rise of 50% in two months. A fair bit of this rise can be attributed to an LSE listed tech stock getting rerated/hyped up on the basis of its NASDAQ peers such as Trade Desk, Magnite and Pubmatic via the IPO into the US. Inevitably, I think, there was a fair bit of short term froth in this.

There will have been a fair bit of ballyhoo in the US talking up Tremor International (LON:TRMR) to get the IPO away and while making it big and pricing it towards the top end of price talk (albeit still at a c.12% discount to the LSE price, say £6.90 ($19/2/1.38) compared to London open of £7.80) suggested a high level of confidence from the Managers, it also made it a bit of a hostage to fortune.

Sod’s Law, the Fed’s inflation mutterings spooked the market such that the IPO came out on a pretty volatile day with the Dow, S&P and Nasdaq all well down following the European markets’ lead. The £ also took a bit of a pasting too falling from $1.40+ to below $1.38 at one point which added another level of noise. On the day, the IPO came out at $19.00 but marked down to a low of about $16.16 (-15%) before closing at $17.90 (-5.8%), about £6.50 (i.e. 10p below the London close). The combined effects of the discount caused by the dilutive issue of new equity coupled with a generally lousy day for peer group stocks (the three US peer group stocks mentioned above were down between 2% and 6.7% on the day and even more intra day) and, most likely, a bit of surplus stock overhang with the Managers that they dumped as soon as they could all combined to drag the Tremor International (LON:TRMR) share price down by the 15.4% at the London close.

Short term it’s a painful, sharp correction to recent optimism. Longer term, if you still buy into the Tremor International (LON:TRMR) story and in particular that the IPO listing will raise its profile in the US market which generally values this kind of story at a much higher valuation than on the LSE then 2-3 years down the track it will be a blip on the share price chart.

Gus.

Stock Pitch - Tremor (LON:TRMR)

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Jack Brumby

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