CM8 looking cheap after extending debt at existing interest rate

By Trevor Hoey. Published at Dec 15, 2016, in Technology

Crowd Mobile (ASX: CM8) has secured a one-year extension until October 2018 in relation to its final Track acquisition junior debt while maintaining the interest rate at 15% per annum. In addition, track vendors will be issued with $2.2 million in CM8 shares in lieu of cash interest payments of €154,000.

This will provide CM8 with improved financial flexibility over the next 12 months, enabling the company to continue to grow the business while paying down its €6.1 million Convertible Note.

CM8 is still in its early stages, so investors should seek professional financial advice when considering this stock for their portfolio.

CM8 has a world leading Q&A platform, providing personalised expert advice and a subscription service giving users access to games, infotainment and security products.

Tangible revenue model

The company operates across 54 countries and 30 languages, having partnered with more than 160 mobile carriers allowing users to pay for products and services through their mobile phone or with Google or Apple Pay

CM8 has also developed a diversified range of products in the m-payment, entertainment and infotainment space.

Part of CM8’s revenue model relates to its mobile content subscription whereby the company promotes mobile products across targeted websites and via marketing agencies.

Consumers opt in, fill in their mobile number and receive content and entertainment within seconds. CM8 then pays a fee to the marketing agency for every new subscriber acquired, while it receives recurring revenue through weekly subscription payments.

Telco operators receive payments and earn a percentage of the fee. CM8 receives between 15% and 65% depending on the country and telco operator.

Strong growth in 2016 likely to continue in 2017

2016 was a year of robust growth for CM8 as the number of income generating countries increased from 25 to 54 and the number of telco m-payments partners grew from 50 to 160. Billed questions answered (Q&A business) increase 60% from 5.7 million to 9 million.

Impressive operational performances flowed through to the company’s financials, demonstrated by the following data.

Trading at substantial discount to broker valuations

Finfeed discussed today’s developments with DJ Carmichael analyst, Michael Eidne. He viewed the debt restructure as a positive development, believing that recent share price weakness may have stemmed from concerns regarding the group’s debt obligations.

However, he also noted there had been a shift away from that investment sub-sector with investors who are looking for growth while happy to absorb some risk transitioning to the resources sector.

Eidne said that his previous price target for CM8 of 35 cents may be trimmed slightly, but given the company’s recent trading range of circa 9 cents the implied upside should be in the vicinity of 200%.

Eidne expects to see improved cash flow and reduced debt in fiscal 2017/2018, and as this unfolds it is quite likely that CM8 will rerate.

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

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