This blog gives you the latest topical news plus some informal comments on them from ShareSoc’s directors and other contributors. These are the personal comments of the authors and not necessarily the considered views of ShareSoc. The writers may hold shares in the companies mentioned. You can add your own comments on the blog posts, but note that ShareSoc reserves the right to remove or edit comments where they are inappropriate or defamatory.

Monitise crashes to earth

Monitise made an announcement yesterday (22/1/2015) that prompted the share price to crash. It’s 14p at the time of writing when it had been over 60p earlier in the year, and had been declining steadily over recent months. Questor in the Daily Telegraph said on the following morning that “A buyer may come out of the woodwork but we recommend taking what you can – Sell”. One cannot be blunter than that.

The company announcement indicated that revenue growth will be flat or falling this year when it was expected to rise substantially. They also indicated that they were undertaking a “strategic review” and declared they were in an “offer period” under Takeover Panel rules. It is clear the business is being put up for sale.

This company has never made a profit in the years it has been listed, but still expects to achieve “EBTIDA profitability in FY2016”. The market cap is still £320m and revenue is key when valuing this kind of company if profits are yet to appear.

ShareSoc Members might have been aware of some issues at this company because there were two reports from their past Annual General Meetings available to our Full Members. In addition this writer made some comments in an article on share tips in October 2014. I said that I had “become disillusioned with the business strategy, the continual fund raising required to support it, and the management approach” of the company and had sold by holding in the company in April. I was also never happy with the remuneration levels of the executives including share options which they cashed in at an early opportunity rather than retained the shares.

It will be interesting to see whether they find a buyer for the business and at what price. But with the growth of competition in mobile banking solutions, it is not at all clear that they have any unique technology or unique market position that justifies even the current valuation (about 3 times revenue).

In summary, Monitise is yet another AIM shooting star that has crashed to earth. A great “concept” stock promoted by a persuasive CEO, but where it was never really clear that the business model would enable them to generate real profits. Even the business model changed recently to concentrate on subscriptions rather than licensing. It is a good example of the danger of investing in technology stocks unless you really understand what’s under the bonnet and the market environment.

Roger Lawson

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