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Blinkx: DailyMotion deal - Buy with new 100p target

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Another day and another upbeat announcement from AIM-listed blinkx plc (LSE:BLNX), which describes itself as “the world’s largest and most advanced video search engine.” Today’s news is of a partnership with Dailymotion. In itself that has not prompted analysts ( or me) to increase forecasts but it has given a greater degree of certainty on numbers currently in the market. And I sense that by the time of the prelims on May 13th we will see upgrades. The bull case is very much intact.

I commented on blinkx after its last partnership deal) with KoldCast TV earlier this month – you can click here to see why I regarded the stock as a speculative buy then.

My stance is unchanged but the element of speculation grows weaker the buy case stronger. I could see the shares reaching 100p within a year. The share price is now 66.5p.

The partnership announced today is with Dailymotion, the world’s number 2 video-sharing website, attracting more than 106 million unique monthly visitors and 2 billion videos views worldwide. The agreement will see blinkx embed Dailymotion’s player alongside its own content, making Dailymotion’s index of more than 30 million videos simple to search and share, with the companies then sharing revenue from advertising placed against these videos.

The partnership adds to blinkx’s roster of more than 800 partners and more than 35 million hours of video and audio content it has to date indexed and made fully searchable and available on demand and reinforces the attractiveness of the company’s patented search technologies which optimise search results via analysis of the sights and sounds of content.

Brokerage Canaccord has emphasised today’s move as “another step in the right direction in terms of widening blinkx’s list of partners (over 800) and its library of content (more than 35m hours of video and audio content) to monetise.”  It has reiterated its buy stance as has Numis which has a target price of 104p and stated that it expects “blinkx to deliver rapid revenue growth as the universe of interactions expands, the monetisation of these interactions increases and eCPM pricing benefits from mix effects.” Numis added “The group’s shares have been impacted by the HP/Autonomy situation, which we believe has no read across to Blinkx and has created a buying opportunity.”  Fundamentally Numis believes that “the group is well placed to benefit from irreversible and accelerating trends in the markets which it serves, in particular increased penetration of broadband and connected devices which is driving consumption of online video, while advertisers are following audiences online.”

Whilst forecasts have not to date been modified on the back of today’s announcement, it strengthens my confidence in the future here. blinkx’s results for the six months ended 30th September 2012 showed a 45% increase in earnings per share to US cents2.38, with period end cash (net) totalling $41.63 million, net current assets $43.53 million and net tangible assets $52.10 million (circa. £32.8 million, 9p per share). For the full-year earnings per share of around US Cents 3.40 are currently anticipated, with more than 5.50 (3.47p) looking feasible next year.

A suggested ex-current net tangible assets, forward price-earnings multiple of 16.5x means clear downside scope should the growth story, for whatever reason, be interrupted here, but blinkx looks ever stronger positioned to benefit from an accelerating migration to, and consumption of, online video, as broadband and web-connected devices continue to proliferate. Such powerful secular trends in the company’s favour suggest the current valuation may, in the medium-long term, be made to have looked very attractive and for a premium growth stock riding an industry trend (like ASOS as I explained here) a PE multiple in the mid twenties + NTA is not inconceivable. And that would deliver a 100p target price.

Tom Winnifrith writes for 10 US and UK websites. You can get alerts on all of Tom’s articles by following him on twitter @tomwinnifrith

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