2500 times revenues, an accident waiting to happen?

Who on earth wouldn't short the shares of a company that has just reported revenues of £24,000 and is valued at over £60m? A ridiculous valuation surely, and such an easy target. In fact, those figures can't be right can they? The company is valued at 2500 times revenues. Bonkers. Welcome to the world of social media. The figures are correct, and the company is the only LSE listed social media company, Audioboom.

I have written about Audioboo(m) several times in the past and I own a 20% stake through my holding in 7digital. You can follow my history of blogs about this company through the links below:-

http://michae1mouse.blogspot.co.uk/2014_03_01_archive.html

http://michae1mouse.blogspot.co.uk/2014/05/boom-one-delta-rises-more-than-100-on.html

http://michae1mouse.blogspot.co.uk/2014/05/7digital-reverses-into-ubc.html

http://michae1mouse.blogspot.co.uk/2014/06/billion-dollar-boom.html

It makes sense to open a spread bet on Monday on the SP collapsing, and sit back patiently and watch. After all look what happened to Monitise this week.  In my opinion, Monitise was grossly overvalued, and I did comment on Monitise back in December last year:-

http://michae1mouse.blogspot.co.uk/2013/12/monitise-home-retail-group-and.html

However, I'm not going to short Audioboom shares despite their silly valuation or sell my shares in 7digital. Why? Firstly, if Audioboom retains it's current valuation (or rises even further) this implies that 7digital's own business is viewed by the market as having next to zero value. 7digital should achieve revenues of £14m this year, and whilst it is likely to be loss making in the short term, it is potentially a very exciting growth story on it's own merits.

Secondly, since listing Audioboom has announced content partnerships with CBS, Sky Sports and Essel Group (Essel is one of India's leading conglomerates, with a portfolio of entertainment and news channels) and a deal with talkSPORT to take on Audioboom's UK sports network sales.

This is terrific progress alongside it's 100% hike in registered users in 12 months from 1.4m to 2.8m at 25 August 2014. However, what would really put me off going short on the shares are the two following snippets from recent RNS releases. In July Rob Proctor CEO of Audioboom said this,

"The Company has recently been approached by certain investors who have expressed interest in investing capital into the business. The Board considered these approaches, as the Company is growing very rapidly and additional personnel are required in new offices and in content management to direct this expansion. The Board has, however, decided that the number of initiatives in progress mean that this is not an appropriate time to raise further capital."

Followed by this paragraph in the interim results:-

"Alongside our own development, the world of social media continues to flourish; strategic acquisitions by global players, both Western and Asian, continue with regularity and at high valuations. Audioboom is operating in a global market, if we continue to develop our platform and technology, the future will look very interesting for shareholders. I intend to make the most of these opportunities."

It would appear to me that the company is looking to build quickly and sell quickly. In the present climate it's not too difficult to see Audioboom being sold for well in excess of it's current valuation, and possibly in the not too distant future.

I certainly won't be shorting the shares. Something I never do anyway.

However, just one final thing to add. Audioboom and 7digital are highly speculative, and there is no margin of safety with either company. In other words, the shares are not for widows or orphans, and whilst fortunes could be made, they could equally be lost.

For the record, I currently hold 7digital shares with their 20% holding in Audioboom.

Everything needs crossing, it's that type of punt.

Trakm8 - Driving growth into new territories

Last week Trakm8 released a trading statement ahead of their AGM. In the first four months of the year, strong organic growth has continued with the value of new orders booked up 33% against the same period last year on a like for like basis.

This year will also see a full contribution from Box, which they acquired towards the end of last year, and as a consequence, revenues will be considerably higher with the corresponding benefit to profitability.

Interestingly, the current year has seen 17,000 more units reporting to their servers making 75,000 in total. If they continue at that rate then over the full year the number of units reporting to their servers will have almost doubled. This is extremely encouraging since the revenues generated are recurring, and form the basis of Trakm8's financial stability as it moves through the gears on it's growth trajectory.

In recent weeks they have also announced new contract wins with Kubota (an existing client) and Downton (a new customer). On Friday they announced a further contract win with SAGAsystem AS based in Norway moving them into Scandinavia which represents a new territory for Trakm8. It's reassuring to see Trakm8 are not only able to win new clients and move into new territories, but importantly existing clients keep returning to expand and update with Trakm8 solutions and products.

Whilst Trakm8 has already been a multibagger for me, I see no reason to sell my holding and remain hopeful that they can continue to capitalise on their position in the rapidly growing Telematics market place. I am cautiously optimistic that with the market opportunity that lies before them, over time they can develop into a company that commands a market capitalisation well above the current valuation of £22m.

The company remains on track to meet market expectations for the full year of 5.7p EPS which puts the forward p/e at just over 13, the predicted EPS for 2016 at 8.0p gives a forward p/e of just 9.5.
Given the rate of growth, this suggests the shares are very good value, and any announcement of further major contracts similar to their recent win with Direct Line would make the shares look extremely cheap.

Will further business Floow in?

Direct Line Group shareholders will be pleased this morning. The Group released a solid set of half year results, and declared another special dividend alongside a 5% hike in the usual payout. In total shareholders will receive 14.4p (about 5% of the current share price). It looks like they are making a habit of this, and long may it continue. If you are looking at a dependable income stock then DLG should be right up there as a main contender.

As a shareholder in Trakm8, I was also interested to ascertain any snippets of information that related to their Telematics contract with the Group. The key snippets are these:-

"Our performance has also allowed us to continue to invest in the future of our business, to enhance our product propositions and improve our customer experience. We have rolled out self-install telematics boxes, which will enable us to reward better driving, and we've made it easier to buy our Motor products on smartphones and tablets."

"Distribution - In April, the Group launched its self-install telematics proposition in the UK following a successful pilot. This supports the Group's strategic aim of being a leading operator in developing the telematics market and enables it to offer telematics to a broader range of customers. Take-up remains strong for Direct Line new policies with one in five under 25 year olds electing for telematics, with take-up increasing to more than 50% for new business sales to under 21 year olds over the phone."

"In addition, the Group continued to improve its pricing sophistication for renewing telematics policies and announced an equity investment in The Floow, the supplier of smartphone applications and telematics data analytics for the Direct Line DrivePlus telematics product range."

"Furthermore, the Commercial division is piloting telematics propositions with Direct Line for Business and NIG customers."

It's also interesting that Trakm8 are working closely alongside the Floow on developing the Telematics for Direct Line. I wonder if this tie up will extend to other clients?

I notice that the Floow have been working with AIG, Accenture and a South African company called Tracker in the past 18 months. Trakm8 in turn would bring Eon, St Gobain, the AA, Fujitsu and Kubota to the party.

A strategic partnership between the two with this list a major clients would be interesting to say the least.

The Floow's comments on Accenture are intriguing:- "Accenture is a global powerhouse in many areas of technology consulting, including advising the world's top insurers on new technology and science. We created a Telematics Pilot that is being run in North America and this will form the basis to many products from Accenture, watch this space!"