Interactive investor31 Dec 2018 17:14
Location Sciences (LSAI)
2.225p
Location Sciences has just raised £2.95 million at 2.25p a share to finance the growth of its new Verify product, which was launched during 2018. Advertising fraud is a major problem and Verify can help advertisers combat this problem, which is estimated by the World Federation of Advertisers as potentially costing advertisers more than $50 billion in 2025. The US is going to be a key market for the group.
Location Services was previously known as Proxama and the original digital payments business was sold one year ago. This enabled costs to be reduced but the company had limited funds with which to grow the business. The new focus is providing intelligence and location data for brands so that they can accurately understand their customer base.
Verify provides evidence of advertising effectiveness in terms of locations and it could become the most significant revenue generator. Advertising fraud can take the form of adverts that are not seen by real people or by the target audience in the right locations. Verify can analyse data and identify abnormal patterns of locations. If these false impressions can be identified, then the brand can refuse to pay for them. Verify charges fees based on the number of impressions for an advert.
Stockdale believes that revenues could reach £2.7 million in 2019, but investment in building up Verify means that there will be a significant loss. If Location Sciences can achieve the 2020 forecast revenues of £8 million, then it could make a pre-tax profit of £1.8 million. To put that into perspective the market capitalisation is currently £7.6 million.
Of course, things may not go exactly to plan, but there is enough to be positive about to believe that Location Sciences is progressing in the right direction and it has a potentially lucrative product in the form of Verify.
Investors can still buy shares at around the placing price. This is the more risky of the five recommendations but it is modestly valued - due to past disappointments and following a share consolidation. The upside could be significant. Buy.
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