Monitise (LSE: MONI) shares rose more than 10% to a high of 35p when markets opened this morning, after the firm announced an extension to its existing commercial relationships with Santander, Telefónica and MasterCard.
Monitise also revealed that these firms will collectively subscribe for £49.2m of new shares, at a price of 30.5p per share.
Good news?
Today’s announcement is good news in the sense that it should provide Monitise with enough cash to keep it going until 2016, when it expects to report some kind of profit. The three firms involved are all heavyweight players in the global payments market, so have the potential to drive significant transaction volumes.
However, I’m concerned that this is basically just a cash call in disguise: Santander, Telefónica and MasterCard were already partners with Monitise, and this morning’s announcement is very vague when it comes to the details of the proposed new collaborations.
In my view, there’s very little that’s new here, except the cash. This view is strengthened by the news that the £49.2m will also give Santander and Telefónica the right to appoint a non-executive director to the Monitise board.
Existing Monitise shareholders might want to consider the fact that their share of the firm will be significantly diluted — again — as the new shares will enlarge the firm’s share capital by 8.2%.
Demanding outlook
Monitise reiterated its previous guidance in this morning’s announcement, which should reassure shareholders.
Revenue is expected to rise by at least 25% this year, compared to 31% growth last year, and the firm expects to report positive earnings before interest, tax, depreciation and amortisation (EBITDA) in 2016.
Perhaps the biggest challenge, however, is user growth: Monitise is targeting 200m users by the end of the 2018 financial year, up from 30m at the end of June 2014. That implies user growth of around 60% per year between now and 2018, compared to 30% user growth last year.
Is Monitise a buy on today’s news?
I think that Monitise’s current £650m market cap is ample, given the firm’s demanding growth targets.
Monitise burned through £61m of cash last year, and shareholders still face the risk of continued dilution from further fundraising.
Monitise’s technology may be sound, but I’m less convinced about the investment case, and I believe that the big profits have already been made for Monitise investors: between 2010 and the start of 2014, the firm’s share price rose by nearly 400% — but it’s halved since January.