The rapid transition from display to mobile advertising has caught many marketing outfits off-guard, but, at the cost of a profit hit this year, Matomy Media (MTMY) has had the foresight to position itself to take full advantage of the changes. The Israeli group has made several shrewd acquisitions and ploughed money into mobile, video and 'programmatic' or automated ad trading, while strengthening its range of services. Yet, despite its recent progress and robust growth prospects, its shares trade at an unwarranted discount to those of peers. The recent launch of a strategic review shouldn't deter investors.
- Earnings set to rally
- Shares are cheaply rated
- Bolstering offering through acquisitions
- Targeting fast-growing markets
- Advertising industry remains in flux
- Weakness in display and social
Matomy's growth bets paid off in the first half of 2016. Soaring advertiser demand in North America fuelled a 95 per cent rise in video sales, while technology improvements underpinned a 144 per cent increase in mobile in-app revenue. Mobile-related offerings generated 38 per cent of total turnover, up from 28 per cent a year earlier, and management intends this to reach 50 per cent in 2017. Moreover, programmatic ad sales grew 41 per cent to account for more than three-quarters of total turnover. And the group's focus on more lucrative technologies helped its underlying gross margin, which ignores a marked rise in amortisation linked to recent deals, rise by 0.5 percentage points to 27.8 per cent.
Matomy has made a string of acquisitions in the past two years, including mobile in-app specialist MobFox and video expert Optimatic. The latter has excellent industry relationships and a strong presence in the enormous US market. The group has also continued to innovate: it recently developed and launched a self-serve advertising platform for media buyers, and opened a mobile agency that caters to performance-focused advertisers. And it has expanded geographically. New offices in China and South Korea have improved its access to the burgeoning Asia Pacific market.
The costs of those initiatives have weighed on profit this year. But the backing of advertising giant Publicis, which owns nearly a quarter of the group's shares and encourages its clients to use Matomy's platform, bolsters our confidence in the longer term. Analysts at Canaccord Genuity expect adjusted cash profit to fall this financial year, but jump a quarter to $22.5m (£18.4m) in 2017.
Investors may balk at the 70 per cent decline in the group's first-half display revenues, which was even quicker than Matomy had expected. But the company has moved fast to redirect the business and these revenues made up only 9 per cent of first-half turnover and should be immaterial in 2017. More importantly, sales in the Americas leapt 12 per cent to $86.4m (£70.4m) - or 69 per cent of the total - and surged 72 per cent in China, a key growth market. The launch of a strategic review aimed at maximising shareholder value means some uncertainty, but if it leads to a sale of the business, investors could see a handsome return.
| MATOMY MEDIA (MTMY) | ||||
|---|---|---|---|---|
| ORD PRICE: | 129p | MARKET VALUE: | £121m | |
| TOUCH: | 128-131p | 12-MONTH HIGH: | 132p | LOW: 64p |
| FORWARD DIVIDEND YIELD: | nil | FORWARD PE RATIO: | 11 | |
| NET ASSET VALUE: | 111¢* | NET CASH: | $9m | |
| Year to 31 Dec | Turnover ($m) | Pre-tax profit ($m)** | Earnings per share (¢)** | Dividend per share (p) |
|---|---|---|---|---|
| 2013 | 194 | 8.8 | 10.5 | nil |
| 2014 | 237 | 15.1 | 13.4 | nil |
| 2015 | 271 | 22.3 | 20.3 | nil |
| 2016** | 272 | 14.0 | 10.1 | nil |
| 2017** | 308 | 18.5 | 13.7 | nil |
| % change | +13 | +32 | +36 | - |
Normal market size: 3,000 Matched bargain trading Beta: 0.06 *Includes intangible assets of $144m, or 153¢ a share £1=$1.22 **Canaccord Genuity forecasts, adjusted PTP and EPS figures | ||||
