Monitise Interim Results

Monitise’s H113 results confirmed that user-generated revenues continue to grow strongly, driving gross margins above 70% for the first time, ahead of target. The company reported an EBITDA loss in line with management expectations and is still on track to generate revenues above £70m in FY13. Recent partnerships and acquisitions seek to expand the product offering and add new routes to market. Proceeds from the recent fund-raising are being invested in growing the functionality of the Mobile Enterprise Platform and scaling up service delivery capability. Imminent service launches based on Monitise technology should accelerate user-generated revenues in the medium term, the key to reaching and driving profitability.

H113 Results: Tracking In Line
Monitise reported revenues that made up c 40% of FY13 guidance. User-generated revenues made up more than 50% of revenues, driving gross margins of 72% that beat the company’s 70% target for H213. The EBITDA loss was in line with management’s expectations, reflecting the high level of investment in the technology platform and service delivery capability. Net cash was £100.4m at the end of H113. The company has made progress in Indonesia, where a mobile payment service launch is imminent, and has signed up new partners to help drive sales globally.

FY13 Outlook And Changes To Estimates
The company reiterated FY13 revenue guidance of at least £70m and expects gross margins to be at least 70% for the year. Our revenue forecasts are unchanged. We have increased our gross profit forecast for FY13 but maintain our EBITDA forecasts for FY13 and FY14, as we reallocate some FY13 headcount costs to operating expenses. Factoring in higher depreciation and amortisation, we reduce FY13 EPS from -2.1p to -2.6p and FY14 from -0.3p to -0.7p. Reflecting costs related to recent acquisitions, our net cash forecasts are reduced for FY13 (5%) and FY14 (8%).

Valuation: Tracking Milestones That Drive User Adoption
Monitise trades on an EV/sales multiple of 6.4x FY13e and 4.2x FY14e. In the absence of profitability metrics to support the valuation, share price appreciation will depend on Monitise achieving its stated targets. Future milestones include Visa Europe’s and Visa Inc’s customers adopting their services, the launch of services in Asia Pacific, progress with direct sales in the US and evidence of adoption of m-commerce services. Recent mobile payment-related technology M&A highlights Monitise’s potential strategic value to larger technology companies.

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