Snakk Media — Update 2 November 2016

Snakk Media — Update 2 November 2016

Snakk Media

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Snakk Media

Investment in expansion

Media

NXT Company Spotlight

2 November 2016

Price

NZ$0.45

Market cap

NZ$7m

Net cash (NZ$m) at 31 March 2016

2.9

Share price graph

Share details

Code

SNK

Listing

NXT

Shares in issue

15.7m

Business description

Mobile advertising technology company Snakk Media offers a full suite of mobile creative, content and technology services, empowering the world's leading brands and agencies to accurately reach and engage with consumers on their mobile devices.

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Bull

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Strong management team and board.

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No legacy advertising systems.

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Targeting high-growth Australasian markets.

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Bear

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High currency exposure to US dollar.

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Low barriers to entry.

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IP risk tied up with talent.

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Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Bridie Barrett

+44 (0)20 3077 5757

Snakk Media (SNK), which connects brands to mobile audiences, has published its Q217 key operating milestones. These include a premium gross margin of 61% compared to peers at 40%. This is a little below the company?s 62% FY17 target, although the ytd figure of 64% still allows some leeway. The click-through rate ticked up from 0.95% in Q1 to 0.98% in Q2, not far adrift of the FY17 target of 1.00% and well in excess of the industry average (0.62%). Lower staff churn post Q1 and Q2 recruitment has led to an increase in headcount, swelling the compensation to revenue ratio. This should correct as the extra staff give the capacity to drive sales.

Q217 key operating milestones (KOMs)

Click-through rates are an industry-standard indicator of the effectiveness of a marketing campaign. Snakk Media continues to demonstrate that it performs well ahead of the market, with a further increase over the quarter that should enhance its own competitive position. The group?s focus is on delivering targeted campaigns that are engaging (supported by its in-house creative division, Touch Create) and therefore effective. This should also help support the prices that it can achieve, thereby maintaining its premium gross margin. Gross margin is also supported by its strategy for the constant drive to use sophisticated and efficient technologies to purchase advertising inventory cost effectively.

Mobile fast gaining share

Mobile advertising continues to increase apace, with the latest report from Zenith showing an increase in its outperformance against desktop. By 2018, mobile is expected to account for 60% of all internet advertising (from the earlier forecast of 58%). Snakk is exposed to some of the fastest growing mobile markets. The September 2016 report from eMarketer shows the percentage of media ad spending in Australia targeted to mobile increasing from 16.2% in 2015 to 43.1% by 2020. Mobile spend is expected to outstrip TV ad spend for the first time in 2016.

Valuation: Trading at a steep discount to peers

Snakk continues to trade at a significant discount to its listed global peer group of quoted mobile solutions and digital advertising companies, even allowing for its small size and early stage. At 0.4x FY16 EV/sales, Snakk is trading at around half of the consensus media peer group multiple of 0.8x. The Manji Family Trust has increased its shareholding over the course of the year to 12.1% of the issued share capital.

Historical financials

Year
end

Revenue
(NZ$m)

Gross profit
(NZ$m)

PBT
(NZ$m)

EPS*
(c)

EV/gross
profit (x)

EV/sales
(x)

03/13

3.7

1.9

(0.9)

(5.7)

2.2

1.1

03/14

7.1

2.9

(1.9)

(12.0)

1.4

0.6

03/15

9.2

3.9

(4.0)

(25.6)

1.1

0.5

03/16

10.5

6.6

(0.6)

(3.7)

0.6

0.4

Source: Snakk Media. Note: *EPS in prior years recalculated for share consolidation.

Q217 key operating milestones

Snakk is due to issue its half-year preliminary results on 30 November and its Q3 KOMs on 30 January 2017.

Exhibit 1: Key operating milestones, Q117 and Q217 actual and 2017 target

Q117 actual (%)

Q217 actual (%)

2017 target (%)

Click-through rate

0.95

0.98

1.00

Gross margin

67

61

62

Compensation ratio

46

65

42

Staff turnover

12

9

24

Source: Snakk Media

Peer comparison

Even allowing for its small size and early stage, Snakk is trading at a significant discount to its listed peers. At 0.4x FY16 EV/sales, Snakk is trading at around half the median level of the consensus peer group multiplex, as Exhibit 2 demonstrates.

Working backwards and applying the median EV/sales multiple of 0.8x to Snakk?s FY16 sales, we arrive at an enterprise value of NZ$8.4m, equivalent to a share price of NZ$0.72, 60% ahead of the company?s current share price.

Exhibit 2: Listed peer comparison

Company

Code

Currency

Market cap
(m)

EV
(m)

EV/sales
(x)

EV/gross
profit (x)

Gross margin (%)

EV/EBITDA
(x)

Taptica

TAP: LSE

GBP

92

93

0.8

4.4

27.8

5.0

Criteo

CRTO:NASDAQ

US$

2,317

1,974

2.8

4.2

35.7

9.8

SITO Mobile

SITO: NASDAQ

US$

101

109

2.9

11.5

59.5

20.0

RNTS

RNM:FRA

?

264

264

3.3

44.7

39.8

-ve

Matomy

MTMY: LON

GBP

124

115

0.5

2.8

22.9

8.2

RhythmOne

RTHM:LON

GBP

144

79

0.4

0.8

44.0

-

Sizmek

SMZK: NASDAQ

US$

114

72

0.4

0.7

61.2

-

Median

0.8

4.2

39.8

9.0

Source: Bloomberg. Note: Prices as at 28 October 2016. Sales and net debt are last reported.


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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
This report has been commissioned by NZX Limited (?NZX?) and prepared and issued by Edison Investment Research (NZ) Limited (?Edison?). This report has been prepared independently of NZX and does not represent the opinions of NZX. NZX makes no representation in relation to acquiring, disposing of or otherwise dealing in the securities referred to in this report.

All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however neither NZX nor Edison guarantees the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in this report may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Australia and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. This research is distributed in the United States by Edison US to major US institutional investors only. Edison US is not registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison US does not offer or provide personalised advice. This research is distributed in New Zealand by Edison). Edison is the New Zealand subsidiary of Edison Investment Research Limited. Edison is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. The distribution of this document in New Zealand is not a ?personalised service? and, to the extent that it contains any financial advice, is intended only as a ?class service? provided by Edison within the meaning of the New Zealand Financial Advisers Act 2008 (FAA) (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. Edison publishes information about companies in which we believe our readers may be interested, for informational purposes only, and this information reflects our sincere opinions. This report is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, this report should not be construed as a solicitation or inducement to buy, sell, subscribe, or underwrite any securities referred to in this report. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. Edison has a restrictive policy relating to personal dealing. Edison does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, estimates of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. To the maximum extent permitted by law, NZX, Edison, either of their affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Ceres Power Holdings — Update 2 November 2016

Ceres Power Holdings

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