Questor share tip: Half price Monitise shares worth a look

Shares in the mobile banking company have almost halved in value since early March, says Questor

By John Ficenec 09 July 2014 • 6:00am

Monitise chief executive Alastair Lukies — Monitise founder Alastair Lukies has split chief executive duties with Elizabeth Buse Credit: Photo: Christopher Pledger

Monitise
45p -4.25
Questor says BUY

MOBILE payments platform Monitise frightened investors yesterday by warning that there might be a few bumps on the road before it ultimately turns a profit in 2016.

The company said revenues would be lower and losses higher in the current year, sending shares tumbling by 15pc.

Monitise has developed a system that allows people to bank and make payments from their mobile phone. The company has then sold this service to high street banks such as RBS and card companies, including Visa.

The mobile payment company is still growing rapidly, just not as quickly as it had told the market it would. Revenue will now increase by about a third this year instead of previous guidance of about 40pc.

The reason for the sharp share price adjustment is because such a high multiple of future earnings was used to reach an estimated market value for the company. This is standard practice for a high growth company but it’s a double-edged sword for investors. You only need to adjust revenues a little and the stock will move wildly.

Questor thinks investors should step back a bit from this latest profit warning. The long term investment story here is still intact.

The company now expects revenue of about £96m, instead of previous forecasts of about £102m, for the year ended June 2014. That doesn’t look too bad and is still growth of more than 30pc.

Losses for the year will now be around £34m, instead of market consensus at £28m, but Monitise is debt free and had gross cash of £145m at the year end. The company said it had a strong enough balance sheet to get to a break-even point.

Investors and the shares have had a torrid time this year. The two profit warnings have been worsened by a wider sell-off in technology shares since March.

Monitise shares are now down 34pc in the year to date and are about half what they were worth in early March. But they are still up 22pc on a year ago and Questor would say the sell-off has merely blown away unnecessary market froth.

With no profits and exposure to technology this is high risk but we upgrade to a buy following the sell-off.