Cheap growth from InternetQ

InternetQ boasts a global presence - it earns about a third of its revenues in each of Europe and Asia and the remainder in the Middle East, Africa and Latin America. It also competes in two fast-growing industries: mobile advertising, where total spending is expected to grow three-quarters to $31.5bn (£19.4bn) this year; and music streaming, a market so attractive that Apple (US: AAPL) recently shelled out $3bn to buy industry upstart Beats Music.

The group's two-pronged strategy continues to pay off. Its first-half mobile marketing sales rose by about half to €52m (£40m), reflecting strong demand for MobiDialog, a service that lets the likes of Orange and Vodafone conduct targeted and measurable marketing campaigns. And its MiniMob platform, where developers can build mobile apps, has now been installed over 250m times. MiniMob's success means that InternetQ has now built a large, private network of smartphone customers which its clients can advertise into, and through which it can push music-streaming service Akazoo.

That synergy helped Akazoo's sales surge by two-thirds last half to €14.2m. Its gains also reflect its strategy of partnering with manufacturers such as Sony and Samsung to provide content for their devices, which lowers its costs and helps it to acquire subscribers cheaply. Akazoo is also handy at translating interest into cash - it converts 20 to 35 per cent of trial customers into paying users. And it gives subscribers the option of paying via their mobile phone bills, which has proven popular in less-developed countries.

All told, Akazoo's subscription revenues are expected to contribute two-thirds of the division's total, up from 40 per cent last year. And overall growth is being helped by launches in nations such as Thailand and Malaysia and the introduction of new functions such as personalised recommendations and radio-like services.

InternetQ is also expanding through international acquisitions. For example, it bought Mexican mobile marketer UpMobile and Latin American mobile provider Interacel this year. True, that meant a hefty €10.5m in capital and acquisition spending in the first half but the group still managed a small free cash inflow of €0.5m. Moreover, broker Canaccord Genuity expects the group's adjusted cash profits to rise 30 per cent to €21m this year, then by a quarter in 2015.

Given its growth profile, it may be surprising that InternetQ's shares trade at 11 times forecast earnings - a sharp discount to the sector average multiple of 17. They've also slumped by about a quarter this year, which leaves space for substantial upside - Canaccord has a price target of 510p.

The shares' lowly rating may reflect the threat of larger tech groups such as Apple and Google (US: GOOG) stealing InternetQ's lunch. Moreover, InternetQ's emerging markets focus opens it up to economic volatility and currency movements. And investors should note that Akazoo remains lossmaking - its operating loss tripled to €1.8m last half.