Below is a summary of the recent Barclays report on Monitise:
Monitise
The route to scale, strategy evolving
As with all hyperconnected business models, the relevancy is based on the amount of connections (i.e. users). In addition, the information-using industries such as retail banks will have to change their distribution model, and mobile offers this opportunity. The strategic change Monitise announced in March should accommodate this and reduce the technical and financial adoption burden by moving to a more standardised architecture and usage-based pricing model. Its success will now simply come down to its ability to ramp users, and this has made the valuation of this stock more difficult.
In this note we show a valuation range of 74-154p and we reinstate our Price Target at 75p and our rating at Overweight.
Clear target in place...
Following the raise MONI is targeting 200m users at an average ARPU of £2.50 by 2018. In addition, it targets an 80% user generated mix and 30% EBITDA margin which suggests a pro-forma EBITDA of £200m and EPS of 7.8p....
but that is easy part...
Our market analysis supports MONI's goals and it suggests 10% global share in 2018.
However to achieve this ambitious user number Monitise will have to make changes to: i) the architecture of the product to reduce the integration burden; ii) change the pricing structure; iii) beef up the sales organisation (both direct and 3rd party), and iv) potentially make some operational management changes....
short term pain...
Given the investments to achieve this and the change in pricing model (to transaction based), we have adjusted our near-term estimates to reflect this. Our new EBITDA forecasts significantly exceed our old from 2H18 onwards....
What to focus on?
Given that user growth will not accelerate meaningfully before 2H15, we expect the market will increasingly focus on deal announcements. This will make the stock more prone to sentiment and hence more volatile, in our view. MONI in the right spot....
it's now about execution...
Similar to other information-driven industries like media, software and gaming, the banking industry will also see rapid digitalisation. Monitise's mobile strategy can accommodate this and increase revenue for clients via m-commerce. But it needs a substantial network, and accelerated user growth is essential. We believe Monitise is pursuing the right strategy to scale and drive profitability in the longer-term.
We reinstate our OW rating and GBP 0.75 PT.
Long: my spec play MONIF