AIM's Taptica could be worth 79% more

After bumper results and the prospect of further upgrades at the next set of numbers, these shares could be 'mispriced', writes Graeme Evans.

Since enjoying the limelight as AIM's International Company of the Year last October, it's been much harder going for shares in the fast-growing, mobile technology advertising platform Taptica International.

The stock peaked at 520p in January following a 180% surge over the previous year, only to slide back to 266p in April. Today, at 363p having been up as much as 16% earlier, half-year results have opened up the possibility that this downturn may have been overdone, with Taptica confident that 2018 underlying earnings will be better than hoped.

It has seen strong momentum in both its performance marketing operation and in its newer Tremor Video DSP business, which delivers custom video experiences matching advertisers with target audiences.

The company is also optimistic of further progress with "Tier 1" advertisers, given that consumers increasingly access the internet on smartphones and video consumption continues to grow. It works with more than 600 advertisers including Amazon, Disney, Twitter and Expedia.

Source: interactive investor            Past performance is not a guide to future performance

Israel-based Taptica, which acquired Tremor Video in August last year, also looks well placed to make further earnings-enhancing M&A, after revealing today it is in talks with various targets.

Today's update reinforced the view of joint broker Berenberg that the shares are "mispriced", given that they have been trading on a projected price earnings multiple of about 9x for full-year 2018. Berenberg increased its price target by 10p to 650p and upgraded its underlying earnings forecast by 10%.

Having benefited from the addition of Tremor, Taptica doubled revenues to $144 million in the six months to June 30, with underlying earnings up 65% to $21.6 million despite some margin pressure caused by the new addition.

Berenberg added:

"If this momentum is sustained, there could be further upgrades at the full-year."

Today's results show a step-up in growth from Tremor since the acquisition, with an increase in average spend per client and the addition of a number of new tier one clients, including GlaxoSmithKline, Procter & Gamble Co and Whole Foods. Margins have improved thanks to being part of a larger group.

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In the performance-based marketing division, which uses big data and machine learning technology to enable more effective media campaigns, revenues were 9.9% higher in the half year.

The core mobile division grew by 24%, driven by an increased presence in Japan and China and the expansion into new segments, such as e-commerce and video-on-demand.

In the UK, where Taptica opened an office in 2017, the company has been working with one of Europe's largest advertising agencies and has also expanded its focus to target businesses on the continent. 

Cash generation in the group has been strong, which has enabled Taptica to pay an interim dividend of $0.0398 per share. This is based on its policy of distributing 25% of net profits in dividends.

In January, the company raised $30 million of equity in order to reduce debt and better place itself to capitalise on M&A opportunities.

It said this had caught the attention of international companies, resulting in it being presented with acquisition opportunities of a "larger magnitude than initially expected".

Taptica added that it saw this as an opportunity to create a step change in its size as well as reach. It remains in constructive conversations with a number of these acquisition targets.