Team Internet Share Discussion Threads

[adamb1978] 13/11/2023 22:02

Hi Amazan, ggrantsu,

Starting point would be to look at the TONIC website, read the acquisition announcement, look at the annual report etc. Beyond that, you'll be getting into depths which, unless people have worked in product/technical roles within the actual industry, anyone would be guessing on more detail. Same with all companies - once you've worked on the inside in certain companies you realise how little people investing in the company truly know about it. Not sure if its the same in all industries but most of my career has been in tech (and TMT) and in my experience the understanding which analysts and investors have (or put differently, the things which they thing are the value drivers, but which aren't) can be a long way from reality.

In my mind TIG are very cheap on a FCF perspective. Earlier this year people like the idiotic Paul Scott were bleating that the cash generation was somehow 'fake' - spending almost £30m on the buyback hopefully dispels those absurd comments. The cash generation here is superb and ultimately thats what matters and is the best indication of true value.

Adam

[azaman] 13/11/2023 21:33

Hello all.

Can someone please explain the business model which will enable TIG to be paid by Google?

I think that the answer to this question holds the key to understanding what TONIC is.

[ggrantsu] 13/11/2023 20:27

The shares at 1.15 look incredibly cheap. Basically 6x earnings and that's not factoring in a very strong Q4...google ad spend / traffic acquisition costs last month showed very positive signs and they are effectively the best external indicator for TIG.

I don't know...I'm willing to keep giving company the benefit of doubt that its hard to get the message across around what TONIC actually does. But their communication / representation of what is going on needs to improve.

If I had one guess around today, it would be the continuous gross margin compression in OM. The jumps down have been consistent now for a year QoQ and are not insubstantial. Basically means they are losing more and more of the value chain pie in that segment...not surprising given they are dealing with actors with much more bargaining power.

[adamb1978] 13/11/2023 17:49

74Tom

Again, not sure whether you're deliberately trying to be provocative in the same way that you quoted the gross debt figures rather than net debt, but if you're taking what they've historically spent cash on then you're looking at it wrongly.

If you recall, they published in H1 this year a new capital allocation policy and in that have stated that the hurdles which they're placing on acquisitions, which is significantly higher than before. That capital allocation policy is prioritising to a much greater extent shareholder returns, and hence the buyback.

They've mentioned this in each of their results since that announcement I believe, therefore you posting about what they invested capital in 3 years ago isn't an indication of where they're going to invest cash going forwards. And since that announcement, they've been true to their word.

I'm not sure whether you're deliberately stating these things wrongly, or are new to the company?

Similarly, to answer one of your other questions, TONIC is the largest of the businesses in their group. Maybe this does indeed indicate that you're new to the company? If so, I suggest you go back and listen to their investor day presentations from this year.

Adam

[slogsweep] 13/11/2023 17:05

They usually by back at higher prices than were available on other days but I suppose its down to when the broker can be bothered to buy rather than getting the best price for the share holders who sick with the company as opposed to those leaving.

[diesel] 13/11/2023 16:05

Be interesting to see how many they’ve bought back today, obviously not as many as have been sold!

[rivaldo] 13/11/2023 15:37

New Edison note raises this year's EPS by 1.4% to 21.4c EPS, rising to 24.7c EPS next year.

Net debt is now $80.9m at the end of this year reflecting the buybacks etc, falling to just $35.1m next year.

They summarise:

"Team Internet Group Q323 results

Diversity delivering resilience

Team Internet’s results for the nine months to 30 September 2023 (9M23) showed good, continued progress, with revenue, adjusted EBITDA and adjusted EPS growing 16%, 11% and 28% y-o-y. Online Presence continued its return to form, with 20% growth over the period. While the weak advertising market and a strong comparative period was reflected in a moderation in growth in Online Marketing (15%), this still implies outperformance of the overall market. Management expects full year
results to be at least in line with consensus. We make no material changes to our P&L estimates and continue to see scope for upside. We have increased our year end net debt forecast (previously below consensus) to reflect higher capital investment in content and software development, acquisition costs and working capital than previously modelled. In our view, the company’s value P/E rating of 7.1x FY23 dropping to 6.1x in FY24 is in stark contrast the company’s growth track record and prospects."

"Valuation: Resilience, growth prospects not priced in Given the weak advertising market and strong comparative period, these are creditable results. We make no material changes to our P&L estimates. Entering the peak Q4 period, we see good scope for upside this year and our FY24 forecast, which calls for 9% revenue growth, look prudent. Our year end net debt estimate increases from US$59m (which was below consensus) to US$80.9m, reflecting the accelerated share buyback plus higher capex, acquisition costs and working capital outflows than modelled. We see this as a one-off adjustment and expect the business model to continue to generate healthy cash flows. In our view, the company’s value P/E rating of 7.1x FY23 dropping to 6.1x in FY24 is in stark contrast the company’s growth track record and prospects."

[deanowls] 13/11/2023 14:17

Caught the beginning, disappointed to see the back bedroom back in operation.

[ggrantsu] 13/11/2023 14:11

this was not what was needed today after a 10% loss in value....

[alter ego] 13/11/2023 13:52

no, they have a "connectivity issue"

[deanowls] 13/11/2023 13:32

Can’t get on the call on investor meet. Is this just me?

[ggrantsu] 13/11/2023 13:14

Enormous loss in value here today....

If the Company say once more 'oh its liquidity issues' I really will be furious. It isn't...more fundamental perception issues I'm afraid.

[74tom] 13/11/2023 11:22

Adam, they have gross debt of $166m, it's a cold hard fact. They have plenty of cash but over the last 3 years they've used it for acquisitions, share buybacks and dividends. The gross debt will cost them ~$13m in interest expense this year.

IMO there is something decidedly opaque about this company which makes standard leverage metrics meaningless. I.e.

"Organic revenue grew at a rate of 20% for TTM 2023, predominantly driven by Team Internet's TONIC platform"

What exactly is the TONIC platform? The only mention of anything 'TONIC' related in the last annual report is the following;

"During the year, the Group has consolidated its product offering and customers migrated from the Group’s AdTonic platform to its Zeropark platform. The useful economic life of AdTonic was reduced from five to two years, resulting in additional software amortisation of USD 639,000 in the year"

Is that the same platform that has been responsible for 20% organic growth? If yes, why did they reduce the useful economic life from 5 to 2 years at 31/12/22?

[hsduk101] 13/11/2023 11:18

1.1 ratio of debt to cash even is fine.

For me I'd rather they stop with the share buy backs and pay of a large chunk of their debt. That will improve the share price

[adamb1978] 13/11/2023 10:49

Also on the debt point, I think they'll max out the buyback by the end of this quarter and then wont have authority to do more til next year's AGM.

So based on $25m EBITDA per Q and deducting some tax, int and investment, they'll reduce debt by around $10m in Q1 and a bit in Q4 this year.

Therefore the net debt of $82m at Sept-23 will be around $70m at Q1 next year, which is set against what will be around $100m EBITDA.

At 0.7x leverage, it isn't over-geared

[adamb1978] 13/11/2023 10:33

Are you deliberately or accidentally ignoring the $84m cash?!?Net debt is $82m, or 1.1x EBITDA

[74tom] 13/11/2023 09:42

$166.7m...

"Includes gross cash, bank debt and prepaid finance costs as of 30 September 2023 (cash of USD 83.7m and bank debt and prepaid finance costs of USD 166.7m); includes gross cash, bank debt, prepaid finance costs and hedging assets of USD 1.4m (31 December 2022 cash of 94.8m, bond debt, bank debt and prepaid finance costs of USD 151.2m and hedging liabilities of USD 0.2m)"

Makes complete sense to be buying back $30m of shares ;)

[ggrantsu] 13/11/2023 09:41

This was unfortunately predictable off the back of these numbers...good numbers but much slower growth vs. last year when the share price would still sell off.

As I mentioned a few weeks back...clear market perception issues about what the business does. Feel vindicated in that view given the share price performance of other cylical advertising/technology focused names I am heavily invested in e.g. Future + Next 15...these share prices have rallied and rallied hard off the back of a slight bear market bounce. However...TIG simply has not followed that, even in by an inch. Yet they have posted some very impressive numbers on the face of it today...I commend the team...OP performance was astounding...20% organic growth. Reminds me a little of Future in terms of SOTP argument, Future have GoCompare (worth at least 20x vs. group multiple of 6x)...OP for TIG is clearly worth a much higher multiple vs. OM.

All one can do is sit it out and wait for a potential bid I think here...struggle to envisage the market awarding this a much higher multiple.

[hsduk101] 13/11/2023 09:33

What's the actual debt amount? As I can't see the latest figure in the results

[davebowler] 13/11/2023 09:03

Zeus-
9M2023 results

Team Internet delivered 16% revenue growth, well ahead of peers. Online Presence grew faster than Online Marketing as the popularity of alternative domains continued to grow and whilst the digital advertising market remained weak. However, the Online Marketing division continued to outperform the sector and now appears well positioned to benefit from a sector recovery. The company also continued to benefit from operating leverage and, more significantly, share buybacks. As a result, Adj EBITDA rose 11% and Adj EPS rose 28% yoy. We leave our forecasts unchanged, which leaves room for some outperformance. Despite Q4 being a seasonally strong quarter, our Q4 EBITDA and Adj EPS represent only 25% and 18% of our full year forecasts, respectively. Also, shares trade at only 5.4x EBITDA 2023 and with a 13.8% FCFF yield.

♦ Group performance at least in line: 9M2023 revenue rose 16% yoy to $611.7m. Gross profit grew at a slower 8% to $138.5m since gross margin fell to 22.6% from 24.4%. But EBITDA grew at a faster 11% to $68.8m due to operating leverage and expense management. Adjusted EBITDA as a percentage of gross profit increased to 50% from 48% a year ago. Moreover, EPS grew 28% to $17.6 cents, supported by share buybacks equal to 6% of previous shares outstanding. The company has remaining authority to buyback £13.3m of shares under the expanded programme announced on 3 July 2023.

♦ Online Marketing accelerates: 9M2023 revenue grew 15% to $474.7m. The number of visitor sessions increased by 36% to 5.6bn for the trailing twelve months (TTM) to 30 September 2023, more than offsetting the 7% fall in RPM (revenue per thousand sessions) $97, which represents outperformance in a weak digital advertising market. 9M2023 gross margin was 19.9%, down from 21.5% a year ago, resulting in gross profit growth of 6%.

♦ Online Presence outperforms sector: 9M2023 revenue grew 20% to $137.0m, driven by the the increasing popularity of alternative domains. The number of processed domain registration years increased by 11% to 14.1m for TTM to 30 September 2023 and the average revenue per domain year increased by 8% to $10.81. 9M2023 gross margin was 32.3%, down from 34.5% a year ago, resulting in gross profit growth of 15%.

♦ Cash and conversion to improve: Net cash was $81.7m, which would have risen by $26.6m before shares buybacks ($30.2m), dividend ($3.6m) and deferred consideration payments ($17.9m). Cash conversion is expected to improve in Q4 as Adjusted operating cash conversion normalises to 100% from 95% in 9M2023.

♦ Confident outlook with some room to outperform: The company is confident ahead of the seasonally strong final quarter and expects to deliver results at least in line with expectations. We conservatively do not change our forecasts, leaving some room for outperformance. Despite the a seasonally Q4, our Q4 revenue, gross profit, EBITDA and Adj EPS represent only 26%, 25%, 25% and 18% for our full year forecasts, respectively.

♦ Attractive valuation: Shares trade at only 5.4x EBITDA 2023 and with an attractive 13.8% FCFF yield

[davebowler] 13/11/2023 09:01

Cavendish-
Investment case – strong organic and inorganic growth from a robust marketplace platform – As we explain in more depth in our initiation, TIG is capitalising upon the complementary opportunity for its Online Presence and Online Marketing divisions. Following investment through 2021 and 2022, the group is primed to benefit from platform economies of scale, which can be accelerated by its proven ability to acquire companies at attractive multiples, generate cost savings, and drive cross selling. Its strong cash generation provides excellent scope to reduce net debt, expand shareholder returns, and/or fund future M&A.

[slogsweep] 13/11/2023 08:31

The sell off begins , not surprising on past experience. Debt too high and buy backs just seem to be money down the drain. Pay off the debt and start paying a decent divi would work better in my view. If this company was debt free and paying 5% it would not be on a PE of 5. An ideal share for an IHT ISA if they did that. Clearly too small a company for any wide spread institutional interest who want buybacks for tax reasons.

[adamb1978] 13/11/2023 08:31

Yes, decent set of results, in particular the topline continuing to grow very strongly despite difficult market conditions. QoQ turnover was up from $202m to $215m, which is excellent.

Looks like they'll beat the upper end of revenue expectations - $840m - $850m looks more realistic to me and then probably around $98m EBITDA.

I think they'll reach the buyback limit this quarter so will be interesting to see whether they call a EGM to get greater authority, but if not then the cash generation will reduce debt, which I'm equally happy with.

All good!

[rivaldo] 13/11/2023 07:45

Good to see that results continue to be expected to be "at least in line with expectations".

Zeus's forecast for this year is 21.3c EPS, so with 17.6c EPS in the bag at the end of Q3, and Q4 bring the strongest quarter of the year, CNIC look nailed on to beat expectations.

Online Marketing has obviously slowed in the current climate, but Online Presence is knocking the ball out of the park in outperforming and offsetting any marketing weakness with "its highest ever organic revenue growth" at 17%. Although Online Marketing still increased its number of visitor sessions by 36%.

CNIC still look very good value on an EV/EBITDA of only around 5 and a P/E of around 7, which will fall again assuming CNIC beat expectations and with next's EPS forecast to rise nicely to 25.1c EPS from 21.3c EPS.

[rik shaw] 13/11/2023 07:28

Nine months unaudited results to 30 September 2023