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How To Make Money on Losers, and the Monitise Bid

After the takeover bid was announced yesterday for Monitise (MONI) at 2.9p per share (valuing the business at £70m when it was once worth £1 billion, I thought I would look at my past holdings in this company. Surprisingly my total return over the years according to Sharescope was a positive 8.8% per annum compound in this company’s shares. That may annoy many past holders because it’s quite likely that many people lost their shirts on this stock.

Monitise developed on-line banking apps and other e-payment products. Revenues bounded ahead up to £95 million in 2014, but losses increased in line. Pre-tax losses were £63 million in that year and £243 million two years later after the bubble collapsed when customers decided to build their own apps and a partnership with Visa was cancelled. Major write-offs resulted.

More latterly the company has been promoting a development kit for banking applications, but have had difficulty in selling it apparently. I was sceptical about the prospects for this because selling “tools” rather than ready make applications is always difficult and I have a holding in a private company that has faced the same difficulties. There may be some value in it though because the bidder, Fiserv, are knowledgeable in this area and may be a more credible seller of the new product.

I first bought a few shares in January 2012 at 29p and more later. But I sold that initial tranche in 2016 at around 60p. Why? I did not like the continual fundraising, the persistent losses, the excessive pay of the CEO, general profligacy and unkept promises of future profitability. That was combined with poor cash flows plus general over-optimistic noises emanating from the business.

But I did buy back some shares in early 2016 at less than 2.00p which I am still holding when I considered the “legacy” revenue and future prospects justified, and after the CEO was changed. At the time I wrote an article for the ShareSoc newsletter about this and two other companies which I called “real dogs” and questioned whether they could recover (Feb 2016 Informer Newsletter). Incidentally, I did declare my interest in the shares for those who worry about such matters.

So what are the morals of this story:

  1. Be wary of companies which never show they have a profitable business model. Sales are not enough! Monitise eventually had to change that and combined with technology and market changes, these combined to undermine the business.
  2. Are the management conservative or consistently too bullish about the prospects for the business?
  3. Avoid companies that need to keep raising cash rather than generate it themselves.
  4. But there comes a point sometimes in technology businesses where after a change of management the business may be worth reconsidering when all the speculators have long gone and it’s one of those unloved stories that many would prefer to forget about.
  5. Investors in this stock would also have found it useful to read the reports of the company’s AGMs in 2012,2013 and 2016 written by me, Alex Lawson and Mark Bentley that are available for ShareSoc full members.

Roger Lawson

One comment
  1. marben100 says:

    Well, I can beat you in terms of returns on MONI, Roger! :p I was invested for two periods, between 2009 and 2010, and again between 2012 and 2013. My IRR for the first period was 40.0% and 38.1% for the second. On both occasions I exited when I felt the company had become too speculative (after repeated slips to the promised break-even date), and saw no reason to change that view after 2013. I was lucky with my timing there. These days I am very wary of blue sky, “story stocks”.

    Your point 4. is well made, though, and I agree that it can sometimes be worth revisiting investment that have fallen “far enough” if you are confident that there is value there.

    Mark Bentley

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