|shooting_star: i have some shares in burst media and am trying to figure what to do
can anyone help on the following
1. what explains the recent move in the blinkx share price. It seemed to jump in a single day in Mid April to over 140p. This seems to have happended the week after the last trading statement/announcement of burst
2. is there any effective discount going in respect of burst shares as a way into blink on the cheap. I was slightly preplexed to see burst now trading above 30p..but on reflection this is clearly reflecting the ability to convert into blinkx
this is what the announcemnet actually said
Pursuant to the Merger Agreement Burst stockholders will receive US$0.4093 (25.08 pence) in cash or New Blinkx Shares, per Burst Share held by them (the "Per Share Amount")
can anyone do the maths here?|
|charlie: Maryland law a lesson for all prospective shareholders
By David Blackwell
Published: August 7 2009 03:00 | Last updated: August 7 2009 03:00
"It has now become clear to the board that the expected increase in revenue will take longer to fully materialise than originally expected."
That was the warning, complete with gloriously split infinitive, that put the "burst" into Burst Media only four months after the internet advertising company floated on Aim in April 2006. There is nothing like an early profits warning to knock the stuffing out of new shares. They fell from a placing price of 82p and have bumbled along with little liquidity since, touching a low of less than 3½p at the end of last year.
So it is no surprise that some shareholders are keen to sell at 12p a share to Cyberplex, another internet advertising company, which is listed on the Toronto stock exchange. But the board disagrees and last week turned it down.
One of the reasons they were able to do so is that Burst Media, which is based in Boston, US, operates under Maryland law, a fact that even the larger shareholders failed to notice. But towards the back of the admission document, under takeover matters, it is made clear that one provision "may have an anti-takeover effect with respect to transactions not approved in advance by the board of directors, including discouraging attempts that might result in a premium over the market price for the shares of the company's common stock".
Another provision ensures that when any party's total shareholding crosses one of three thresholds at 10, 33.3 and 50 per cent, the shares acquired have no voting rights unless 66 per cent of the remaining shares are voted in favour of that party. This "poison pill" clause ensures that even if Cyberplex bought half the shares - and it has signed proxies on about 40 per cent - it would have no voting rights unless 66 per cent of the remaining shares were voted in its favour first. So Burst Media board's 30 per cent holding would be enough to block any takeover.
Cyberplex is a little miffed, and so are many shareholders. Cyberplex first approached the company on the possibility of a merger in November last year. At the time, Cyberplex shares were 42 Canadian cents. But it has put in a good performance and last month was able to raise a further C$18m at C$1.60 a share.
News of how much Cyberplex was willing to pay emerged only last week and has boosted Burst Media's share price. Vernon Lobo, chairman of Cyberplex, said the proposal had the support of about 40 per cent of Burst's shares - or 56 per cent if the board's stake is excluded - "yet we were unable to engage with the board of directors to further a potential transaction or to take the proposal to Burst's entire shareholder base".
Cyberplex's decision to go public prompted a reply from Burst, which said the "unsolicited indicative approach" was "opportunistic and unreflective" of its worth. It also pointed out that as a US corporation, the City code on takeovers and mergers does not apply to it.
Meanwhile, Burst has been busy buying back shares in order to, as David Hanger, the chairman, boasts in the 2008 annual report, "provide liquidity to shareholders". On January 21, it bought back 9.8m shares at 3.6p.
Then in March the company revealed it had received an unsolicited expression of interest regarding a potential cash offer at between 6.3p and 7p a share from a UK company. It rejected the approach as inappropriate and on May 6 bought back another 2.6m shares at 5.9p a share.
Steve Hill, chief financial officer, says the company ended a strategic review in January and decided the market was too poor to put the company up for sale. The share buy-back had been launched at shareholders' request.
"The bottom of the business cycle is the wrong time to sell. It would be different if we had no cash and no prospects," he says, adding that the company had enjoyed a terrific second quarter.
However, looking at the company's history since that untimely profits warning in its flotation year, you have to wonder if it has ever been at the top of the business cycle. Last year, revenue was flat at $27m and the company fell into the red.
It does have $10m of cash, so before the shares bounced after the Cyberplex announcement they were worth less than the cash. Perhaps Cyberplex has spotted a bargain, but the point is that its offer will not be put to the shareholders.
Remaining shareholders, let alone those who sold back to the company at 3.6p, are reflecting ruefully on how they might have quadrupled their money if the company had merged with Cyberplex before its shares rocketed in March.
But as one pointed out, the more fool me for becoming a shareholder without reading the articles of association. Any other Aim companies out there operating under Maryland law?|
Copy of a post I made on TMF in case anyone is interested:
The purpose of this post is to attempt to come up with a valuation, based on a potential range of results that BRST might fall within for the year ended 31 December 2007 and 2008. I am bullish on BRST, and am long the stock, so please bear this in mind when reading, and, as always, do your own research.
As a further caveat, all such models are edifices built from several layers of guesswork. I have tried to justify my assumptions below, but they are just that, assumptions, which are based on my interpretation of past results, speculations on the future, and conversations with management. In respect of the later, let me make clear that when I spoke to the FD, we did not touch at all on the 2007 figures; rather I mean that from our general chat about the business I have drawn inferences about the level of spending going forwards. I am ignoring stock compensation charges as non-cash and not dilutive of earnings as all options are very underwater or not vesting for a while.
The first step I have taken is to construct a breakdown of the 2006 result, which is itself a guestimate, given that all we know at the moment is that revenue is "broadly in-line" with the forecast of $24m, and EBITDA is "in-line" with the forecast of $2.4m.
Assumptions for 2006:
- I have taken this to mean that revenues will come in at $23.5m and EBITDA at $2.4m.
- The trading update mentioned commission rates remained strong. I have taken this to mean that gross margins have stayed at a similar level, using 48.5% for 2006 total v 48.9% for H1 2006 and 2005.
- DA for H1 2006 was $78k, and EBITDA included other income of $95k; if these remain constant for H2, this means operating profit would be $2.05m for 2006.
- This implies total overheads of $9,347,500 for 2006. I have split this $2.1m technology and product development (around the same as H1 as costs relating to Burst Direct would have dropped off in H2, but may be more relating to AdConductor customisation), $2.2m G&A (constant in H2 05 and H1 06 so assumed to be only slightly higher in H2 06), and $5.0475m S&M, reflecting a full half year of increased sales force.
Assumptions for 2007:
- S&M increases 5% - 15%. Low increase as already heavily recruited in 06 in anticipation of growth. From conversations, I wonder if they may even end 07 with fewer S&M staff than 06. Nonetheless assumed above inflation pay rises and some staff increases
- G&A increases 10 20%. Again should be conservative given that there are no key costs areas which will need to increase massively to support revenue growth following investment in 06, e.g. already have sufficient office space for current staff.
- R&D remains flat: bit of an unknown, but assumed a decrease in Burst Direct costs offset by increase in other R&D costs.
- Other income to remain flat. Interest income approximated in line with percentages achieved in prior years, based on assumption that cash inflows are broadly 85% of operating profit.
- Revenue: the really hard one. I have assumed 15% - 40% growth. Why? In a really tough year (i.e 2006) they achieved 9% growth (on my assumption). Renewed management focus, a full Sales & Marketing team, a rapidly increasing amount of money being thrown at on-line advertising, and a strong showing in the online league tables of ad-reach should mean that they should be capable of heading back towards the ~50% revenue growth achieved in both 2004 and 2005.
- Gross margins: to stay strong at 48%. Margins may erode slightly in core business, which management would be happy about as it is usually as a result of longer term contracts, offset by what I assume are higher margin AdConductor licence sales.
- Tax at US rate of 40%, including federal and state taxes
- Dollar/pound exchange rate stays at average $2:£1 again a large assumption. I note that the UK operations are an increasing part of the business, which slightly mitigates any negative movement.
Assumptions for 2008:
Revenue growth: 15% - 30%
Gross margin: 48%
Overheads increase: 15%
Exchange rate constant
So, what do these assumptions throw out in terms of results? Well, the "worst case scenario" is:
2006 2007 2008 $ $ $
Revenue 23,500,000 27,025,000 31,078,750
Cost of sales 12,102,500 14,053,000 16,160,950
Gross profit 11,397,500 12,972,000 14,917,800
S&M 5,047,500 5,804,625 6,675,319
G&A 2,200,000 2,640,000 3,036,000
R&D 2,100,000 2,100,000 2,415,000
Operating profit 2,050,000 2,427,375 2,791,481
Other income 760,000 900,000 1,300,000
PBT 2,810,000 3,327,375 4,091,481
Tax 1,124,000 1,330,950 1,636,593
PAT 1,686,000 1,996,425 2,454,889
EPS($) 0.020 0.024 0.030
EPS(£) 0.010 0.012 0.015
And the "best case scenario"?
2006 2007 2008 $ $ $
Revenue 23,500,000 32,900,000 42,770,000
Cost of sales 12,102,500 17,108,000 22,240,400
Gross profit 11,397,500 15,792,000 20,529,600
S&M 5,047,500 5,299,875 6,094,856
G&A 2,200,000 2,420,000 2,783,000
R&D 2,100,000 2,100,000 2,415,000
Operating profit 2,050,000 5,972,125 9,236,744
Other income 760,000 1,000,000 1,500,000
PBT 2,810,000 6,972,125 10,736,744
Tax 1,124,000 2,788,850 4,294,698
PAT 1,686,000 4,183,275 6,442,046
EPS($) 0.020 0.050 0.078
EPS(£) 0.010 0.025 0.039
So, as usual with these models, a huge variation between the two cases. I think it is worth noting that even in my "worst case scenario" the EPS is growing at 20%+ per year. Now of course my "worst case scenario" is not the worst case scenario by any means, but I have been reasonably cautious (perhaps with the exception of the exchange rate assumption).
So, how does this tie in with valuation? I tried to find a sector PER using Sharelockholmes and excluding negative PERs, and the "outliers" (three highest and lowest PERs) gives an average of 21 (if anyone has a more soundly calculated figure, please let me know).
"Worst case scenario" gives, at today's purchase price of 23p, a forward PER of 19 for 2007 and 15 for 2008, not bad for 20%+ EPS growth (PEG less than 1), and under sector average. This suggests that, at the "worst", the current price is slightly undervalued.
"Best case scenario" gives a 2007 PER of 9 and 2008 PER of 6 on EPS growth of almost 100% per year (averaged). If we take a target share price giving equal to market average PER, this suggests an initial target of 52.5p rising to 82p. (The float price was 82p in April 2006!). This would put the share firmly in potential multi-bagger territory.
I was going to finish by saying that the truth probably lies somewhere between these two scenarios, but, given the number of assumptions, I'm not sure that I can even be as certain as that. I believe that our illustrious landlord performs similar calculations on Indigovision and other companies, so I am somewhat reassured that the exercise is not in itself necessarily completely worthless.
Finally, I would not expect the company's own forecasts to be near the upper end of my range. Having had the horrible experience of missing forecasts and being kicked by the market, I am sure that they will be conservative and put out forecasts that can be exceeded.
Any comments welcome.
|metaphysicalman: OK, I've looked a bit further at the Stock Comp charge and it turns out I wasn't right, as you look at the share price at grant date (my excuse is I'm a tax accountant and don't normally look at stock comp charges except for deferred tax, where the market value does actually matter).
Anyway, the charge reflects a combination of a number of factors, key here is the number of options granted and the vesting periods of previously granted options. As far as I can see the large charge in H1 was due to the large number of options which vested in 2006 and which were subsequently exercised. Since then no further options have been granted and a (relatively) small charge will arise as the vesting periods of outstanding options unwind.
So, in summary, probably likely to be a bit higher than I thought, but still not huge. I don't have enough information to be able to estimate the charge using the calc tools you can get off the web. Finally, in terms of double entry, it would be DR P&L and CR Reserves, AFAIK.
I think that the stock comp charge is a non-issue - certainly non-cash, and given where the share price was at 31 Dec 06 and the pricing of the options outstanding, I can tell you that the charge for H2 will be minimal (speaking as an accountant with some experience of the IFRS equivalent of FAS123).
My suggestion is to look at the operating performance and note that they are back on track with strong growth prospects.
|shooting_star: I managed to talk with Bill today - an interesting distraction for me from updating my CV!
Below are some notes I jotted down under questions I had. Bill wasn't necessarily hugely forthcoming with information but my take is that the forthcoming trading statement should be fine, the problems of the past are fixable and stock should go up as credibility is restored. There is a lot of opportunity here!
-did you produce a hardcopy interim results report with full disclosures or did you simply issue your Interim Results via RNS?
THEY ONLY ISSUED AN RNS AND DIDN'T PRODUCE A HARDCOPY INTERIM REPORT
-can you provide any update on trading since the H1 numbers. (are you still happy with Revenue of c$24m for year to end Dec '06 and EBITDA ex stock compensation of c.$2.4m EBITDA as indicated at the time of the H1 results)
NO UPDATE BUT BOARD WOULD HAVE ISSUED SOMEHING IF IT HAD REASON TO BELIEVE NUMBERS ARE "SIGNIFICANTLY" DIFFERENT. WHEN I SAID DOES SIGNIFICANTLY MEAN 10% IN EITHER DIRECTION, BILL COULDN'T SAY IF 10% IS THEIR DEFINITION OF SIGNIFICANT.
-From my searches on the internet regarding your company I notice that you appear to have won a contract with HSBC (their "Your Point of View" Initiative) towards the start of December (see link below). Clearly HSBC are a big company -can you say how material this contract win was?
CANT COMMENT ON SIZE OF HSBC CONTRACT. THERE ARE OFTEN NON-DISCLOSURE CLAUSES WRITTEN INTO AGREEMENTS. WOULD TEND NOT TO RELEASE RNS STATEMENTS ON ADVERTSIERS BUT WOULD RELEASE SIGNIFICANT PUBLISHER CONTRACTS E.G. TAKODA
-can you say anything about other large customers you are targetting/have in your sales pipeline?
CAN'T COMMENT ALTHOUGH MENETIONED THAT BIG COMPANIES LIKE GENERAL MOTORS AND PROCTER & GAMBLE ARE STILL VERY EARLY IN THEIR INTERNET ADVERTSING PLANS. IN THE OFFLINE WORLD 80% OF THE AD SPEND FOR THESE COMPANIES IS IN LIFESTYLE SECTOR E.G. THEY SPONSOR EVENTS OUTSIDE OF THEIR SPHERE LIKE GOLF. IN THE INTERNET WORLD ADVERTSING IS STILL VERY END MARKET FOCUSSED E.G. GM ONLY ADVERTISE ON YAHOO MOTORS
-is it likely that you will release a trading statement before FY numbers? Do you have any date in mind for when such a trading statement might happen and when FY numbers might come out?
TRADING STATEMENT LIKELY IN NEXT COUPLE OF WEEKS
AUDITORS WILL VISIT THE COMPANY IN FEB
FY NUMBERS SHOULD BE OUT IN MARCH
-Do you compete at all in the mobile marketing world with companies such as
MediaBurst in the UK ?
THEY ARE NOT IN THIS MARKET IN ANY SHAPE OR FORM
-Which industry events will be BUSRT be attending in near future. Are any in the UK ? Can you say anything about winning specific business in the UK ?
THEY WILL BE ATTENDING ALL AD TECH EVENTS. THE NEXT ONE IN LONDON IS SEPTEMBER 2007. ONES FORTHCOMING INCLUDE PARIS AND AUSTRALIA
-Can you give me any insight on who are your major stockholders? what is rough split between insiders/institutions/private investors. Who are your big investors in London ?
INSIDERS OWN C.43%
F&C HAVE C.10%
A few specific questions on your financials:
-I wondered if you are making efforts to improve your financial reporting/management information systems? I believe one of the reasons for huge drop in your share price in 2006 was the apparent misleading of the market about the performance in H1 which could have been because of on weak information systems/business intelligence (i.e. you issued outlook statement below on July 20th after the end of H1 period which seemed to suggest a good trading performance but then only 9 weeks later issued the disappointing trading statement & sell side estimates were scaled back to around your revised guidance Can you shed any light on exactly what happened i.e. on July 20th were you fully aware of costs the business incurred in H1?
i.e. July 20th Outlook Statement : Jarvis Coffin, Chief Executive, said: "We are pleased with our overall trading performance in the first half during which time the Company floated on AIM, launched its new division, Burst Direct and significantly increased the size of its staff. The management and Board remain convinced about the prospects of Internet advertising. Despite some slumping forecasts for global advertising generally, industry analysts continue to maintain their very positive outlook for Internet advertising. We look forward to continuing to benefit from the investment we have made in the business to date and from the pipeline of new business which is strong. As a result, we therefore anticipate meeting our goals for the second half of the year."
WHAT HAPPENED WAS NOT RELATED TO POOR MANAGEMENT INFORMATION SYSTEMS AND IN FACT THIS IS ONE OF BURST'S STRENGTHS.
REALITY IS THAT REVENUE BASE IS QUITE VOLATILE EVEN THOUGH IT IS GROWING. I,E. A BIG CUSTOMER CAN QUITE EASILY DROP AWAY E.G, VONAGE. ADVERTISERS CAN CANCEL CONTRACTS FAIRLY EASILY.
WHAT HAPPENED IS THAT IN JULY ALTHOUGH THEY KNEW H1 WAS A BIT WEAK THEY BELIEVED FY OUTCOME WAS VERY POSSIBLE BASED ON A LIKE FOR LIKE YOY INCREASE IN PRIOR 90 DAY PROPOSALS EXCEEDING 50%. UNFORTUNATELY THE CLOSURE RATES ON THESE PROPOSALS WERE WEAKER THAN EXPECTED IN A CRUCIAL PERIOD -LAST WEEK OF AUGUST. HENCE THEY HAD TO WARN.
GOOD NEWS IS THAT THE PROBLEM WAS AROUND IMPLEMENTATION AND IS FIXABLE. MANAGEMENTS TIME WAS DISTRACTED BY DOING IPO BUT NOW THEY ARE CONCENTRATING ON IMPROVING THE OPERATIONAL PERFORMANCE
-Can you give me TaCoda and Reed Elsevier as a % of your H1 Revenue?
TACODA IS MAJORITY OF ADCONDUCTOR REVENUE AND IS LED BY INDUSTRY VETERAN DAVID MORGAN (PREVIOUSLY WITH REALMEDIA (NOW PART OF 24/7 REALMEDIA). ALL OF TACODA'S WORK ORDERFLOWS GO THROUGH BURST'S TECHNOLOGY AND TACODA ARE A HAPPY CUSTOMER. IT SOUNDED LIKE BURST WAS GETTING GOOD PRICING ON ADCONDUCTOR BECAUSE SOLUTION REALLY DOES ADD VALUY.
REED ELSEVIER WAS NOT IN H1. PROJECT WAS DELAYED VS INITIAL EXPECTATIONS
-I am a little unsure about the progression of the company's tax rate over time? Clearly the company had a tax benefit in H1 as a result of making a PBT loss. It looks to me like the company paid no tax on profits in financial year to end of Dec 2005. Can i take it that you have some NOLs which allowed this? What was the value of NOLs at end of H1?
COMPANY WAS AN LLC (A TYPE OF PARTNERSHIP)BEFORE IPO
COULDN'T TRANSFER NOLS TO THE NEW COMPANY POST IPO SO COMPANY'S PROFITS ARE FULLY TAXABLE GOING FORWARDS ALTHOUGH THEY ARE CONSIDERING WAYS TO LOWER EFFECTIVE TAX RATE
-Can you tell me how the number of employees you have has progressed over the last two years? what is the current headcount?
MENTIONED A NUMBER OF 65 PEOPLE AT IPO. DIDNT GIVE AN UP TO DATE NUMBER BUT STAFF NUMBERS HAVE INCREASED SIGNIFICANTLY
-do you anticipate any new broker coverage in near future. Are Cannacord and Altrium still going to cover you going forwards?
By the way I notice that Bloomberg has virtually no information on your stock within its normal description pages. You may want to look into this.
THEY DO HAVE A NUMBER OF PEOPLE INTERESTED IN THE STORY BUT NO NEW COVERAGE IS LIKELY UNTIL CREDIBILITY IS RESTORED
-Can you tell me any Long term financial targets the group has e.g. Gross Margin, EBITDA Margin, Capex as % of Sales etc? Are there any plans for the cash on balance sheet?
NO REAL LONG TERM TARGETS.
THEY BELIVE GROSS MARGIN MAY CONTRACT OVER TIME AS THEY SIGN INCREASING NUMBERS OF LONG TERM CONTRACTS WITH PUBLISHERS. THERE WAS NO REAL EVIDENCE OF DECLINING GMS IN H1 NUMBERS. THEY WANT TO SEE OPERATING MARGIN INCREASING AS SALES GROW FASTER THAN COSTS AND HEADCOUNT
FUNDAMENTALLY THE BUSINESS SHOULD BE A CASH COW AND REQUIRES LITTLE IN THE WAY OF CAPEX. DOES SEE DEPRECIATION RISING A BIT THIS YEAR THOUGH
RE: CASH THEY ARE NOT REALLY LOOKING AT DOING ACQUISITIONS AT PRESENT AND WOULD WANT THEIR EQUITY TO BE VALUED MORE HIGHLY TO CONSIDER THIS (SELLERS WANT A COMBINATION OF CASH + UPSIDE FROM EQUITY). THEY ARE ACTIVELY TALKING ABOUT WAYS OF IMPROVING SHAREHOLDER VALUE INCLUDING SHARE BUYBACKS.
I WOULDN'T BE SUPRISED TO SEE A BUYBACK THIS YEAR AS A SIGNAL TO INDICATE THE STOCK IS UNDERVALUED. BILL SLIPPED IN A COMMENT TO ME THAT HE THINKS STOCK IS DEPRESSED WHEN HE SAID THAT THE STOCKS VALUATION IS NOT INDICATIVE OF THE TRUE VALUE OF THE COMPANY (HIS TAKE IS THAT THIS IS LARGELY BECAUSE OF MISTRUST)|
|shooting_star: The CEO posted an interesting article yesterday on online media daily. His words do not sound like those of a man who is overly concerned about the prospects for the business he is in
Old News, New Media
by Jarvis Coffin, Monday, Dec 11, 2006 6:00 AM ET
A RECENT COVER STORY IN Ad Age ("The Short Tail," Nov. 27), which has been well reported in the online trade press, was the old news that most of the ad dollars online go to a handful of large players. According to the article, 72% of ad revenue in Q4 of 2005 went to the top 10 ad selling companies. Almost all of the ad revenue in last year's Q4 (95%) went to the top 50 ad selling companies. Those of us who labor online have heard all this before--for years. So, why is this newsworthy? I have a hunch that it is because mainstream advertising is becoming unconsciously aware of the fact that having all that money in those few places is out-of-step with the media environment called the Internet. It's an anomaly.
To that point, one assessment Ad Age makes in its article accounting for the concentration of ad dollars is that they are TV dollars migrating to the Internet, which means they must behave like TV dollars. I suspect the assessment is accurate despite the absurdity; obviously, TV dollars belong on TV.
I've sold advertising for my whole career, except for two years at the beginning that I spent on the ad agency side. As a salesperson, I've had the privilege of selling for some of the world's foremost publications, including USA Today, Business Week and The Los Angeles Times, each of them very big ad sellers. Ad Age, in fact, was my first sales job. Despite the competitive advantages of each of these publications, my customers always had a problem it was hard for me to solve: how to allow them to reach their best, most important customer, and eliminate the media waste inherent in how we charged for and delivered their messages.
See, it's great that the Los Angeles Times, for instance, dominates the Southern California market, and it's accepted that it is a "must buy" for retailers and all others interested in reaching what was (as I recall) the world's eighth largest economic region. But if you only want to pay to reach people in part of that region, or part of the people in the whole region, what do you do?
It's an old problem, but it has an answer in today's media economy: the Internet. Consumers were first to recognize this. They bit into the Internet hard and haven't let go. The Internet solves the same problem for them that it solves for advertisers: it eliminates waste. I read the sports section. I don't read the travel section. I follow baseball, I don't follow football. I am a Red Sox fan. I am the sum of my own parts and my media habits reflect that, now more than ever. Indeed, the secret to the Internet's success long-term will be how well aligned its value is with the needs of both consumers and advertisers, which is the case with all great media.
This is all easy to understand, but harder to put into media practice. We can tick off the reasons for that, too: fear, entrenched power of established media, budget scarcity, measurement and standards, creative flexibility, media planning resources, etc. We could be talking about the advent of cable TV or FM radio. The forces at work are the same. First the audiences get it ("I want my MTV"), then we wait.
We know all this, we Internet laborers. So, my hunch is, it's dawning on the broader market that something's got to change. TV dollars do not belong online. It's not a good answer. Internet dollars belong online doing for advertisers what the medium does for consumers (which does not, by the way, include spending much time hanging around portals).
The story the ad trades should be running on their covers right now is the emergence of the ad network as a dominant life form online (see Dave Morgan's column, "Ad Network Resurgence," for instance). That's the story, taking place in real time, that comes after the one about how ad spending is concentrated on a handful of top Web sites that mimic TV. The ad network story is interesting because it implies that the market needs distribution, not concentration. The market is reacting to the fact that the ability to efficiently and transparently access lots of Web sites is somehow important to eventual success. That may not be in the numbers from Q4 of last year, but clearly many people think it will be in the numbers going forward. My bet is we'll read about it in the ad trades in November, 2008.
I was a little suprised to see Burst media sell off towards the end of last week.
Running the maths on my prior estimates at today's share price suggests 2007 EV/EBITDA is below 5x. This could easily expand to 9x in my view on any +ve newsflow on management's handling of the cost base. Apply a 9x multiple would suggest stock price upside to over 30p
Shares outstanding 82.93
Market Cap =£15.34m
Net Cash as of H1: £6.65m
Net Cash as a % of Market Cap=43% (Per Share is 8p)
Rev $24m i.e. £12.57m
EBITDA $2.4m i.e. £1.26m (pre non cash stock option expense)
EPS 1.17p (pre non cash stock option expense)
EV/EBITDA = 6.9x
P/E =15.8x (would be a lot lower if you looked at this ex-cash!)
Rev $27.6m i.e. £14.45m (I assume 15% rev growth next year is achieveable)
EBITDA $3.5m i.e. £1.83m (pre non cash stock option expense)
EPS 1.70p (pre non cash stock option expense)
EV/EBITDA = 4.75x
P/E =10.9x (would be a lot lower if you looked at this ex-cash!)
EPS growth 45.3%|
|tiredoldbroker: I'm inclined to agree that there are a number of tech stocks which look a little flaky right now, on my basis of valuation - as far as OTO is concerned, it still has a favourable wind behind it, and is able to present everything going on in an optimistic light, but any slip-ups with "delivery" and there is really no underpinning for the share price, with a current market value over £100m.
So they really HAVE to make good on their promise a month ago of "near term major partnership agreements". In other words, either they confirm deals with some major ISPs (which they may well do) or their share price, compared to net cash of maybe £3.6m (US$2.9m at 30 June plus £2m from the recent placing) is going to look very exposed. The problem is with judging their chances of success !|
|tiredoldbroker: I usually feel that trends repeat themselves in the market. When a particular sector is at the height of its popularity, a lot of money will be chasing stocks in that sector. Which means that it is easy to get away with an overpriced flotation in that sector, at that time, because normal critical judgement is suspended and passion governs the direction of cash for investment. The greatest example of this in the last decade was the tech boom leading up to the end of Q1 2000. You could float an "incubator" at several times cash value at that time, because investors wanted incubators at any price. The "justification" was that they'd make such marvellous investments that the premium would soon amount to nothing. The truth - that many tech start-ups would fail, and even the successes might take years to mature - was overlooked, for as long as the fashion remained.
Within the last 12 months, I think a number of mining/oil stocks were floated or raised additional cash at inflated prices, because fashion was with them.
I do suspect that BRST was floated too early in the lifecycle of its new media business, on a temporary wave of enthusiasm, and was issued at way too high a multiple of cash in the bank. The problem is that this leaves no room for error and many times over the last 5-6 years, I've seen the market really cane any high tech stock which fails to deliver right on the initial promises. So I suppose one part of my approach is to look at the accounts with a high degree of scepticism and not to be generous in my analysis of what the figures mean, and to treat any failure to meet targets as a definite red light.
If a business is still at an early stage in its development, and not reliably making a profit or generating cash, I'd see share price relative to net cash per share as a key indicator of whether or not something is over-valued, as the share price can easily slide to below net cash if sentiment turns against the stock, and a development-stage business then has to prove why it should be worth more than the value of the development funding it already has in the bank.
Just an idea, open to discussion of course.|
|tiredoldbroker: Yes, the company had US$ 12.7m cash at the end of the period but there are a few things to note. Cash generation wasn't as simple as "Net cash provided by operating activities $1,402,615" - that is just one line from the overall statement, and cannot be used in isolation.
I would suggest that you work backwards from the bottom line, where total cash generated in the course of the year is shown as $5,238,992; but of this, $4,334,329 came from "financing activities", basically the issue of additional shares, including a one-off $421K credit on a stock settlement. Purchasing equipment etc was a net negative of $497,952 and the net positive contribution of $1,402,615 from operating activities was only achieved by writing back the cash value of $2,064,110 in "equity based compensation", which I would suggest is shorthand for the fact that more shares were issued but under the category of a substitute for cash payment of salaries, rather than lower down in the statement as a "financing activity".
So I would suggest that writing all this back, at the genuinely operational level, the company was cash flow negative, and only covered this by diluting the equity.
Given that it was also lossmaking and has issued a substantial profit warning, I would therefore wonder whether the cash is a sufficient support for the share price. With £/$ at around 1.88, the cash is about £6.75m but the market value of the company at 25p middle is £20.7m with 82.9m shares in issue.
We've seen recently with stocks like Adamind that the combination of a poor trading statement with the dawning realisation that the company is burning cash can be quite enough to send the share price on a downwards path until it reaches the point where market value is less than cash in the bank - and indeed there have been dozens such cases over the last 5 or 6 years.
Bearing that in mind, I would still not see BRST as good value at this level (23p-27p), it carries too much downside risk.|