XLM, WHY SO CHEAP???????????12 Nov 2015 15:17
INVESTOR'S CHAMPION BLOG
XL Media (AIM:XLM) – another great update but why are the shares so cheap?
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Posted 12/11/15
​The global digital publisher and marketing company has issued yet another positive trading update for the year ending 31st December 2015 driving its shares sharply higher. We appreciate this business faces the gambling world, albeit in a marketing role, but it is deploying cash generated into other areas, as well as returning a good chunk to shareholders via an attractive dividend. At the current valuation the shares are surely worthy of greater attention.
The latest update has confirmed that the Company now expects to exceed current market expectations delivering annual revenues of at least US$88.0m and adjusted EBITDA of at least $27.5m. This strong performance represents growth of a staggering 73% and 62% respectively compared to FY 2014, although there have been a number of acquisitions along the way.
During 2015 the Group acquired performance marketing company, Marmar Media and the acquisition of bolt on publishing assets. EDM, the social and mobile gaming marketing company which the Group acquired in September 2014, is also performing strongly.
XLMedia PLC was established in 2008 by the combination of two separate businesses created by the founders who appear to be based in Israel, despite the Jersey holding company. The Group attracts players through online marketing techniques and subsequently seeks to channel high value ‘‘traffic’’ (i.e. players) to gambling operators who, in turn, convert such traffic into paying customers.
Online gamblers are attracted by the Group’s publications and advertisements and are then directed, by the Group, to online gambling operators in return for a share of the revenue generated by such players being: a fee generated per player acquired, fixed fees or a hybrid of any of these three models. At least that’s been the model up to now, although acquisitions could introduce other models.
Looking at the returns this business generates from a seemingly dominant market position in the marketing of gambling (not gambling itself) the rating looks very modest.
The interim results for the 6 months ending 30th June 2015 showed revenues up 85% to US$36.8m, adjusted EBITDA up 103% to $12.9m and pre-tax profit up 187% to $13.2m offering a margin of nearly 36%. Net cash from operating activities was a delightful US$12.1m lifting cash and short term investments to US$43.2m (£28.4m), equivalent to 14p per share. Strip out the cash and this business is trading at less than 10x current year estimates falling to less than 8x for 2016.
The business is reinvesting cash in more domains and other intangible assets, not necessarily in the gambling market. For example Marmar Media, in which it acquired a majority stake in June 2015, specialises in performance based marketing for a number of verticals including apps, sof
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