It has been quite a ride for shareholders in Monitise (LSE: MONI) over the last few months. Shares in the company hit a peak of just under 80 pence per share in February and March of 2014, today they currently exchange hands at under 7 pence each – that’s quite a fall from grace and illustrated rather well by the chart below:
What’s Gone So Wrong?
When shares slide like they have with Monitise, there is usually at least one reason behind it. In the case of Monitise, it can be summed up by the view that the market has lost faith in the story that was once so popular with investors.
When this is coupled with the exit of some major investors, most notably Visa Europe, a strategic review resulting in the founder and co-CEO Alastair Lukies ‘stepping down’ from the board and the company recently guiding the market down, with expected revenue now between £88-90 million (down from £90-100 million predicted at the time of the strategic review announcement at the end of March), it all adds up to poor share price performance. I suspect the fact that the company doesn’t make any money hasn’t helped matters, either.
Does All This Create An Opportunity?
As the above chart has illustrated, shares in Monitise haven’t been this ‘cheap’ since the financial crisis – but are they indeed cheap?
This is the million dollar question because Monitise is very hard to value using basic multiples: I get valuations ranging from 0 pence (earnings power value and others) through to 34 pence (relative to sector valuation).
That said, we are in a bull market — this means that it is more than possible that an interested party, possibly one of its current partners or a private equity firm, able to take a long-term view could well step in here and pick the company off on the cheap. If the investment case plays out, it is likely that they could make a killing by floating back on the market in years to come, although one wonders why a sale didn’t arise following the strategic review.
To me, it seems that investors simply need to take a view on whether they believe that the investment case will prove correct. There could be handsome rewards for brave contrarians willing to chance their hard-earned cash and prepared to take the long view.
So, What’s My Take?
For me and my money, I won’t be writing this company off, yet. I will, however, be watching for the following:
- With Visa Europe selling its remaining 5.3% stake, there will be a considerable overhang as shares flood into the market. With the negative sentiment currently surrounding the stock, it is quite possible that brokers will find it difficult to place the stock, thus creating downward pressure on the share price;
- I’ve noticed that the largest shareholder (Omega Advisors) has reduced its holding in the company from nearly 14% down to 12.85% — whilst this is not game-changing, it does make me wonder whether it is looking to reduce its holding further – should this be the case, I suspect that the share price will reduce further;
- Positive signs could be in the form of one of the other major shareholders purchasing the vendors shares, thus creating confidence in the company, the business model and the share price.
For the time being, though, it isn’t for me.