Marimedia marries growth and value

Shares in fast-growing companies often carry a hefty price tag. Marimedia (MARI) breaks the mould. The company, an Israeli technology business chaired by Incisive Media boss Tim Weller that floated on Aim in May. Its shares offer investors the prospect of rapid sales and profit gains at a discount rating. Based on its innovative advertiser-to-publisher matching technology and exposure to the burgeoning online media market, we think this represents a speculative, but potentially lucrative, buying opportunity.

Marimedia's 'Qadabra' software platform is used in over 40 countries helping over 10,000 online publishers - including Yahoo and Gumtree - maximise their online advertising revenues by matching ad slots on their websites with the highest-paying advertisers. The platform delivered an average of 65bn monthly page 'impressions', or ad views, in the first half of this year. What's more, the technology learns from the past performance of website owners' adverts, meaning it becomes more valuable to customers the more they use it. Marimedia manages its platform for larger clients and gives smaller ones a self-serve option, and receives roughly a third of the revenues it helps site owners to generate.

"We cater to publishers that want to make money from advertising but don't have the necessary tools," says chief executive Hagai Tal. Even as online ad exchanges and technology have proliferated, he says, website owners have been "neglected" and many are "confused" about how to effectively translate page views into revenue. Using Qadabra gives them access to a global network of advertisers and greater control over how adverts are used on their websites. Marimedia's current goal is to grow its direct sales to publishers, which already account for about two-thirds of its revenues.

It's important that Marimedia has compelling technology because competition in the digital media market is intense. However, given that the market is estimated to be worth $120bn (£70.1bn) digital media market, there is plenty to go for. And so far, Marimedia has been doing well. From a low base, annual sales have grown at a compounded rate of 88 per cent between 2010 and 2013, and the company says revenues have risen at least 45 per cent in the first half of this year. Moreover, broker N+1 Singer expects both its sales and cash profits to grow at a compounded rate of over 35 per cent over the next three years.

The recent 153p per share IPO raised £18m to help fund further growth. The company plans to use the proceeds to invest in real-time bidding (allowing advertisers to bid for ad slots targeting anonymised profiles of individual internet users) and its mobile capabilities. It also has an option to buy San Francisco-based Taptica, which helps brands and app developers to acquire mobile users and improves advertisers' ability to target them. Seizing the opportunity, which expires next month, would bolster its mobile technology and improve its cross-platform offerings.

Fast-growing and profitable businesses typically have lofty ratings, but Marimedia's shares offer surprisingly good value. They trade at 12 times N+1 Singer's forecast earnings for 2015, falling to 10 times earnings in 2016. There is also a modest but useful dividend of 1 per cent expected this year, rising to 2.1 per cent in 2015.