Questor share tip: Questor protects investors again as Monitise slumps

Monitise
35p-7.5p
Questor says SELL

The Telegraph's Questor column advised investors to sell shares in Monitise [LON:MONI] just over a month before the AIM-listed mobile payments technology firm saw almost a third wiped off its market value on Thursday morning after Visa Inc said it would aim to offload its 5.5pc stake.

On the August 15 we said "There is too much risk here for the potential reward. Sell."

The technology start-up was listed on Aim in 2007 and is now worth about £820m. The company founded by Alastair Lukies and Steven Atkinson has been built around a mobile application that allows users to connect to their bank through their phone, then check accounts and make transfers and payments.

The app has attracted some significant clients in HSBC, RBS and Visa Europe. Revenue increased by 67pc to £46.5m in the first half of 2014 as the value of transfers and payments more than doubled to $71bn. The company expects to increase revenue by more than 30pc to about £96m for the full year ended June.

The big question is not around revenue but profits. Monitise reported a loss before tax of £51m in the year ended last June and made a further loss of £21.3m in the first half of 2014.

The company is debt free and had net cash of £86m at the end of June 2013. The company said in July it had a strong enough balance sheet to get to a break-even point.

However, Ali Farid Khwaja, technology analyst from German bank Berenberg, is not convinced. “We remain sceptical about Monitise’s ability to reach its 2017 targets,” he said. “In addition, we do not share Monitise’s vision of turning mobile banking applications into a mobile commerce marketplace.”

Berenberg cut its target price by 44pc to 42p, as Mr Khwaja thinks Monitise will struggle to transform a mobile banking application into the go-to hub for consumers to store loyalty cards, find offers and complete retail transactions.

Questor agrees with the logic and is exiting the speculative buy tip made at 45p in July. There is too much risk here for the potential reward. Sell.