Mobile money firm Monitise (LSE: MONI) is a company Ive been none too flattering about in the past. However, with the shares having fallen from a high of 80p last year to just 5p today, could there now be value in this bombed-out stock? Similarly, is e-invoicing firm Tungsten (LSE: TUNG) worth reconsideration, with its shares have fallen from 400p last year to 70p today?
Monitise boasts relationships with a roll-call of blue-chip companies, including Banco Santander and IBM, and describes itself in rather impressive terms: Monitise plc has created the most extensive and commercially successful mobile banking and payments service in the world.
For the 12 months ended December 2014, the worlds most commercially successful mobile money firm posted an EBITDA (earnings before interest, tax, depreciation and amortisation) loss of 52m on revenue of 91m. However, the company has reiterated a target of positive EBITDA for its financial year ending June 2016.
The reason why I think Monitise has potential right now, though, is connected to the company putting itself up for sale on 22 January, then calling off the process on 25 March, having rejected a number of expressions of interest from various parties, which the Board believed undervalued the business.
Now, Ive no idea about Monitises intrinsic worth. What I do know is that trade buyers were interested when the company went up for sale with a market value of 350m in January. I would suggest that the parties concerned value Monitise significantly higher than its current price in the market of 110m. If so, there would appear to be plenty of scope for a new offer for Monitise at a 100%+ premium, giving investors today significant upside.
Monitises Board may have waved suitors away just a few months ago, but the appetite of some major shareholders for a sale of the company would appear to have increased markedly since then. In a series of trades during July, Monitises largest shareholder US group Omega reduced its holding from 13.9% to 10.9%. Also during the month, it was revealed that 5.3% shareholder Visa Europe intends to reduce its stake over time.
With strong indications that Monitise is worth more than its current market value in the eyes of trade buyers, and that some institutional shareholders appear happy to exit at a relatively low price, I think the stock currently looks a speculative buy on the potential for corporate activity.
Tungstens relationship with blue-chip companies is, if anything, more impressive than Monitises. Tungsten trumpets that it serves many of the worlds largest companies, including 56% of the Fortune 500 and 67% of the FTSE 100.
For its financial year ended April 2015, this processor of global transactions worth 121bn, posted revenue of 23m and an EBITDA loss of 25m. House broker forecasts for positive EBITDA have been pushed back to the companys financial year ending April 2018, according to data from Thomson Reuters.
As with Monitise, Ive no idea about Tungstens intrinsic worth. But, unlike the case ofMonitise, I can find no clues as to what kind of valuation a trade buyer might place on the e-invoicing firm. In the absence of such an independent valuation, leaving only the house brokers numbers to go on (of which Im always sceptical), I find it impossible to reach a conclusion as to whether Tungstens current market value of 88m is fair or whether it might be worth half or double that figure. As such, Monitise is my preferred choice for a speculative buy.
Of course, there are many other smaller companies with high potential in the market today. And some are already profitable. In fact, a terrific opportunity has just been unearthed by the Motley Fool’s shrewd small-cap analyst Mark Rogers.
In “1 Top Small-Cap Stock From The Motley Fool“, Mark explains why this company has strong near-term growth prospects, and long-term upside from potential entry into the US market.
G A Chester has no position in any shares mentioned. The Motley Fool UK owns shares of Monitise. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.