Monitise Revising Estimates Post Acquisition

As Monitise (MONI.L) has completed the acquisition of Clairmail, which extends the group’s reach in the US, we introduce revised forecasts to incorporate the new business. Now that the deal has closed, the combined US operation can focus on accelerating growth in US users through both the direct sales force and via partners FIS and Visa Inc. Until profitability is reached (targeted for FY14), we expect the share price to move with the achievement of key milestones that demonstrate or drive user adoption.


Clairmail acquisition completed
Monitise shareholders voted to approve the Clairmail acquisition on 25 June and the deal formally completed on 26 June. This will result in the issue of 253m Monitise shares over the coming weeks, with a further 23.8m deferred for up to 18 months (subject to amounts held back for claims against warranties of the Clairmail business) and 35.9m issuable from options and warrants. Monitise will combine its existing US operations with the Clairmail business, resulting in more than 150 employees based in the US compared to the c 450 employees in Europe and the rest of the world.

Introducing revised forecasts
We have revised our forecasts to incorporate Clairmail from 26 June. This will have a minimal impact on the P&L in FY12, although we incorporate slightly higher losses for the underlying Monitise business due to acquisition and other investment costs. In FY13, we forecast group revenue growth of 111% to £71.9m (up from the previous £46.9m), resulting in an EBITDA loss of £10.8m (from a loss of £5.1m) and a net loss of £14.7m (versus £7.2m). We estimate that the group will have a net cash position of £0.4m by end FY13 (including gross cash of £8.8m), and the group continues to target EBITDA break-even in H114.

Valuation: Milestone driven until break-even
On our revised forecasts, Monitise is trading on an EV/sales multiple of 9.8x FY12e and 4.9x FY13e (based on the market cap calculated using current outstanding plus initial consideration shares). In the absence of profitability metrics, we expect the share price to move with progress on key milestones (eg US and European banks adopting Visa Inc and Visa Europe services respectively, progress with JV partners in Asia, progress with direct customers in the US and the UK, uptake of Simply Tap). Recent sector M&A highlights Monitise’s potential strategic value to larger technology companies.

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