Ignoring news flow for a moment, Monitise‘s (LSE: MONI) share price looks as if it might, just might, have seen the bottom of the cheek-wobbling plunge that started at the beginning of 2014.
As I write we are at 19.25p, but the shares touched 13p in January 2015, just prior to the firm’s announcement that it had received expressions of interest in a range of potential corporate transactions including a merger with a third party or a sale of the company.
Everyone likes a corporate deal
The whiff of corporate action — deal making — stirs the animal instincts in most investors. We all smell potential for other corporate entities to whip our shares away at a premium for a nice profit, or for the involvement of other companies to enhance the value in our holding in some way. True to form, the stock market tried to anticipate improved circumstances and the shares are up before the ‘fact’ of any improved trading or other prospects.
But that’s how it goes, and I’d never underestimate the ability of the combined weight of investor opinion to foresee, correctly, a turnaround in fortunes for any company. On that basis, the bottom could be in, so let’s look at three compelling reasons to buy Monitise now:
1. Huge customer base
The story of Monitise’s success at penetrating the mobile-transactions market is the carrot-on-the-stick that keeps us all excited about the firm.
In February, the firm said its total user count exceeds 82 million. That’s a lot. Imagine how Monitise’s fortunes could be transformed if it managed to earn just 10p of net profit per year from each of those users.
Elaborating further, the company reckons it saw registered end-users grow from 30 million in June 2014 to 33million at the end of December 2014. Then, there was a further 49 million-plus downloads of Monitise-designed high-engagement apps across what the firm describes as “multiple industry verticals and email subscribers to the Monitise Content consumer business”. Live transactions were 5.1 billion on an annualised basis by the end of 2014, up 50% on the 3.4 billion achieved the year before. Overall, Monitise asserts that payments and transfers initiated via Monitise technology are worth $101billion on an annualised basis, up 49% on the $68billion year-ago figure.
These are very big numbers and, comparatively speaking, we are only looking for a very small profit!
2. Debt free
Monitise has no borrowings, so the balance sheet is strong with £129 million of gross cash on the recent balance sheet.
However, a word of warning on this point — Monitise remains loss making and burns cash at an alarming rate. As a consequence of that, the firm has a reputation as a serial capital-raiser, which always involves the issue of new shares and the consequent dilution of existing shareholders.
3. Potential bid target
Monitise put itself up for sale early in the year and it might just be attractive to someone. It’s possible that an organisation could come along whose existing operations enhance the value of operations at Monitise causing them to become profitable. If that happens, one possible outcome could be that Monitise investors see a gain from where we are now.