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Tremor International (LON:TRMR) – incredibly undervalued on just 6 times earnings

This week’s trading update from this global marketing solutions group was totally confidence inspiring.

What is evident is that the group is now pushing strongly the progress of its Video and Media sides, turning the Performance business into a non-core activity contributing less than 10% of EBITDA going forward.

Just look at this group’s profit growth $23m in 2016, $31m in 2017, $42m in 2018 and $52m estimated for last year, while $69m is projected for this current year.

That should see the sterling equivalent earnings of some 34p per share – so at 206p, up 10% this week, the shares are rated at a mere 6.1 times price earnings – which is incredibly undervaluing such strong profits growth over the last few years and anticipated going forward.

Looking to be headed a great deal higher – sights are set by its broker at 500p a share.

Profile 16.01.20 @ 156p set an end-2020 target price of 235p.

I'm looking to put in another 10,000 shares here. Not in my wildest dreams did I expect the chance to get them at less than 120p! That will then be my lot. Sit and wait for a few years riding the roller coaster of the share price.

From an earlier post - “I have noticed some very larges trades, clearly institutions, marked as sells. I suspect these could in fact be buys - institutions mopping up the blood in large tranches. They have a much longer time horizon than the average PI, are less emotional, and importantly, are using other people's money! I await holdings RNS.”

Said RNS has arrived – JM Hambro has acquired 3.61% at a smidge over 50p.

I can understand PIs bailing and feeling misled by expectations. I feel similar. I have mentioned I was in Planet Payment for 9 years, and made about 6 times my money over that period. Share price movements were not unsimilar to here - share price halved at one point before going on to more than triple, at buy out.

It takes time to build out the systems and time to get customers – lead times are lengthy, but good customers give repeat and growing business and are ‘sticky’. Planet was taken private (merged with Fintrax) just as the big profits started to come through. Shareholders were robbed of the massive growth which followed.

Private equity know what they are doing. Equals is looking strangely familiar. From memory Planet had revenue of $55 – $60m at buyout. Equals is not far behind if 2020 revenue comes in at £40m. Equals could easily become a target to be taken out very cheaply.

Having carefully thought through the last few days, if I had spare capital I would be investing heavily here – an easy double / triple your money over 2 – 3 years time.

It's not possible for every trade of the day to be a sell and for the SP not to be moving downwards. I can buy at 50p. I have since tried a sell order. Also offered 50p to sell!!!

Try for yourself. Nothing wrong with the algorithm - all trades below 50.5p are deemed to sells, regardless of truth.

Useful investor presentation - https://www.youtube.com/watch?v=XP4Y1VmOSBY

Trading pattern is most odd. I have just placed an online order for 5,000 and was offered 50p straight to BUY. The quoted spread is 50 - 51p. Therefore, many trades marked as sells are infact buys. I didn't do a sell quote, but I bet I can't get one - it'll go to negotiated and if executed be less than 50p.

Exactly, Mandrill. Somebody is buying absolutely everything that is coming on offer at 50.5p thereabouts!

IST on Proactive Investors - https://www.proactiveinvestors.co.uk/companies/news/911893/equals-group-plc-chief--phenomenally-bullish--about-prospects-as-revenues-rise-20-911893.html

Almost 15min interview. He admits communication to the market about how the business has been developing has fallen short and is "upset" re the fall in the share price. Also sounds like the USA initiative has not yet gone live, but should do so soon. Seems to indicate that the bulk of the investment and cost increases are over, having built up the platforms and systems to service the type and volume of transactions which they can now go for. Some interesting comments on acquisitions as well.

See share talk, Tues 12.55 post - the 200 day MA is broken, the guy on the link correctly predicts a fall back to the 50 day MA ish of around 112, to act as support, before a long uptrend is due to set in. The 200 day MA may act as short term resistance and the 50 day MA as short term support, before a clear break out. Basically, the chart and company news flow are moving in the same direction. Give it due time, after all it's a very big turn around (back to £10???)

Re MAs - I prefer exponential MAs to simple - personal choice and a bit of a mathematician's thing. Try HL's website
https://www.hl.co.uk/shares/shares-search-results/y/yu-group-plc-ordinary-0.5p/share-charts
The exponential 200 day MA is not broken, but all lines converging to switch over to the 'correct' side.

Somebody has just found a couple of bricks in their toilet bowl.

Just spent a good hour & half going through older accounts and playing with simple scenarios on a spreadsheet.

For 2019 I get this - last years EBITDA of 7.5m plus 30% is 9.75m. Less 1.6m for depn, ammtsn, lease int. to get adj PBT of 8.15m. On 180m shares eps is 4.5p. Over sold. I recon 50p may well hold (the bottom).

For 2020 I get this - Revenue 41m. Adj PBT of 11m. On a share count of 180m shares, eps is 6p. PBT of 9m is 5p eps. What PER is fair? What PER will the market place them on? Modelling this company's profits, due to overhead spend, is very difficult. Markets don't like a lack of visibility.

If nothing else, it's an observation of how markets panic. Today's buyers should be in profit in 12 to 15 months time. I may be back close to break even.

JS
Mandrill - Didn't understand yur comment, As I've already mentioned, this will only be reversed if I sell up too?

This is known as Sod's Law! I always suffer this when I try and trade shares instead of investing. With investing I get it more right than I do wrong (but don't seem to get better with age)

I think this first listed in 2014 at 45p - share price nearly back to square one.

JS - thanks for the swift reply. Must have confused you with somebody else. Getting older and less wiser.

JS - would you mind confirming when you first invested here, into ffx. I remember reading your posts dated some 12 months before I invested (originally in 2017 at around 76p). I have since added as the share price appreciated and it was looking like the company was growing well.

Despite my recent previous posts I sold 1/3 of my holding at 59p to invest elsewhere - having no spare cash I had to sell something and considered this as having the weakest prospects of my portfolio. As said, I did expect this to go to forty something. (Should have sold the lot?) It is obvious that the company has lost all credibility with PIs, both in terms of its business model and poor communications of expectations to the market / brokers / financial analysts & journalists. I have noticed some very larges trades, clearly institutions, marked as sells. I suspect these could in fact be buys - institutions mopping up the blood in large tranches. They have a much longer time horizon than the average PI, are less emotional, and importantly, are using other people's money! I await holdings RNS.

I was invested in a payments provider called Planet Payment which was taken private in late 2017. I had held that for 9 years, first bought at about 60p. The shares went up strongly in a couple of years, to at least to 180, maybe over 200 from memory, on expectation of large profits quickly. The profits did not come that quick and the shares fell back to just below 100, say three years in for me. The takeover price was over 300 per share. Having just googled Planet Payment, it is up for sale at 10 times the buy out price from 2017!!!!!!!!! (that includes Fintrax with which it was merged)

The point is that payment firms take a long time to grow, and you have to invest in the systems first, before you can take on the business. If it takes 10 years to make 5 times my money, that's a well above average return. I intend to watch the news flow and SP here closely. My 'feeling' is that a gift of a buying opportunity will present itself in the low 40s. It's called arbitraging the ignorance of others, or something similar. Though of course I could be the ignorant one! There will be egg on someone's face! At the moment, I suspect its on the directors!

Watch the 12 month high share price - for whatever reason, justifiable or not, with SP at or above this, is seen as good upward momentum.

Of note - high of 235p 05.02.19 and 208p 28.03.19.

Whether the share price is more or less than 235p on 06.02.20, it's a certainty we will be trading on a 12 month high. With a perfect looking chart, traders and momentum investors will be coming in. With a viable and sustainable profit stream from video (and without the doubts over mobile performance) the share will rerate to something sensible - certainly more than a PER 10 (=300p). A PER of 15 would be acceptable to me (=450p). More than happy to wait all year.

And next year also - PER of 20? and then off higher profits too!

I also predict a quieter discussion board (unjustified negative comments serve no purpose with a rising share price and improving company results. By serve no purpose, I mean trigger people's emotions over losing money on a falling SP.)

Any body care to forecast 2020 figures? A very simplistic (arguably naïve) approach - H2 EBITDA was $40m, so on an even keel this is $80m full year. Add $10m for growth from video side, less $10m for on going decline in performance, add $10m for remainder of synergies from merger with R1 on a full 12 month basis. So that's $90m. (Nothing from Unrulely, as already stated by the company).

Yep, sounds ok, plus or minus 10% either side - so say $80m to $100m.

Gonna be a good year for Tremor, and with some sort of cash distribution to boot (special dividend or buy back).

Bit - on the right lines. Yu are being asked by the wholesale markets to pay up front, hence their cash balance has dropped to £2m. The facility with Smartest Energy is basically an overdraft to offset this. During the year the amount prepaid will unwind itself and cash balances will come back in, but they will owe money to Smartest!

I am very pleased with the update and for all holders here who have had a long and patient wait for positive news and forward outlook. I have added more today at 132p to my previous investment at 119p.

I am hopeful 2020 will be a small loss at worst, but think break even is very likely. With the new offices in 2021, 2021 will see large rises in general admin costs, so making an estimate for 2021 is difficult. Over the next 1 to 2 years my target SP is to double and then double again - so say 500p by results day in March 2022.

Oh - they have put in four stars. There is nothing rude or offensive about the six letter word beginning s and ending y. The four stars - I see what they have done - it's a four letter word beginning w and ending k!

js - return to highs? No time soon, we are looking at 18mths to 2 years for that, and even an if. The concern to me and many I guess, is whether the business model is sound. The organic growth seems OK, to be growing revenue in a bad year at 15% ish indicates they are doing the right stuff re customers. The acquisitions - I'm not so sure about, they are fairly small and do not appear to be giving synergy benefits? It's unclear what overhead growth is the acquisitions and what is investment into the platform. With a bigger and better platform we may see bigger acquisitions with more sizable synergies. We need definite signs of leverage - ie revenue growth falling to the bottom line without significant O/H growth. They are hinting at going for more mid size corporates, as well as SMEs.

It's a personal choice - to give them the benefit of the doubt and wait another year or to exit and invest elsewhere. They are ambitious (not always a good thing - the overly ambitious usually fall). A lot of investment has gone on over the last two years - for example the new s****y head offices. Without revenue growth and profits, it's all hubris - isn't it?

Refer back to comments from GCI - it's wrong to focus on short term profits. With £40m revenue expected for 2020 and presumably decent growth from there, I think overall they are trying to build a business of quite some size. It's normal for profit growth to be lumpy / roller-coasterish with this sort of thing. My choice is to remain invested. Admittedly not an easy call, and admittedly one I have to be prepared to be proved wrong in. Though I hope not.

The share price is bound to be suppressed without profit growth and also put on a much lower PER. A PER of 10 will put the shares down towards 40p. This could go 'binary' - either a bad call or become a massive buying opportunity. I can handle the risk and take the financial loss if it goes wrong. The loss of pride in getting it wrong is altogether another matter!

"reinforces the Group's positive outlook for 2020" I missed this line. It does not have the 'feel' of RNS / management BS and lies to the PI that plenty of companies come out with when expectations are not met. Again, the headline of the RNS is very assertive. Reading between the lines - is it the truth or is it a case of I 'Cannot Recommend A Purchase' (C.R.A.P)

I'm staying put. I decided some time ago that I am in here for 4 year's plus time horizon. I think that the investment proposition over that time frame remains intact.

Well, that's a very big ouch!

Revenue in as expected. Overheads, previously flagged as unknown, have come in very high. But the update does explain that investment is going into the platform to increase both capability and volume of transactions - which to be fair is essential to grow the business; you can't tout for customers that you cannot service! This leaves adjusted eps for 2019 to be what????? I'd say about 4.5p

2020 looks promising. Acquisitions already done will add £5m revenue and if organic growth continues at 15% (I reckon about 5% of growth for 2019 was acquisitions) revenue for 2020 should be £40m. If 2019 growth was held back by political and economic factors, this could be higher still. This is growth in revenue of 30% plus. The overheads question then rises again! But with revenue growth of over £10m, less overhead growth, looks like 2020 will be a year of significant growth, and offset 2019 where growth is almost nil. The headline of the RNS is "rapid expansion in 2020" - the numbers I have to hand concur with this.

I would really wish to see accounts before taking any investment action. However, should the share price fall to 40p or less (and with this it would not surprise me, given flattish profits) the buying opportunity presented will be actioned, big time (capital permitting).