Monitise Capitalising On The Mobile Money Opportunity

In FY13, Monitise made significant progress in expanding its service offering, signing up customers for m-commerce services and adding new sales channels. The company continues to invest to drive revenue growth – although this has pushed out our EBITDA break-even forecast by a year, in the longer term the investment should generate a larger number of deals that lead to highly profitable user-generated revenues.

FY13 results in line; contract momentum maintained
Monitise reported FY13 results that were substantially in line with expectations: revenues +102% y-o-y (vs our +100%), GMs of 75.8% (vs our 70.1%), EBITDA of -£19.3m (vs our -£20.1m) and adjusted net loss of £32.8m (vs our £34.6m). The steady flow of contract wins over recent months highlights the company’s progress in widening its service offering from m-banking to m-commerce, and the recent partnership deal with IBM strengthens the company’s indirect sales channel. The acquisition of mobile app design agency, Grapple, extends the company’s product offering from its unseen back-end functionality to consumer-facing user experience design, enabling the company to offer a more complete service to customers and providing it with an entry point into a new customer base.

Changes to forecasts
The company expects to grow revenues at least 50% in FY14 and to maintain GMs above 70%. We have revised down our user-generated revenue forecasts (lower transaction revenues partially compensated for by licence revenues) and increased our opex forecast (to reflect the cost of supporting the growing number of opportunities), resulting in EBITDA of -£6.7m for FY14 (down from +£4.4m). We introduce an FY15 revenue forecast of £144.4m (+31% y-o-y) and EBITDA of £9.4m (6.5% margin), with the potential for partners to drive revenue upside. We forecast net cash of £42.0m by the end of FY14 and £15.7m by the end of FY15.

Valuation: Reflects long-term growth potential
Monitise trades on an EV/sales multiple of 8.1x FY14e and 6.4x FY15e. In the absence of profitability metrics to support the valuation (we forecast EBITDA break-even in FY15), share price appreciation will depend on Monitise achieving its stated targets. Future milestones include Visa Europe’s and Visa Inc’s customers adopting their services, direct sales progress in the US, leverage from sales partners such as IBM, service launches in Asia Pacific and evidence of adoption of m-commerce services. The planned move in CY14 to the London Stock Exchange’s main market should provide support to the share price.

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