LON:TRMR | Taptica - True Contrarian Or Potential Disaster?

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21st Jan '19 by David Cheong

29 comments 4740 reads

Wanted to get the wider communities thoughts on Taptica , especially regarding their latest Buy back plans, suspension of the buyback, supposed acquisition targets and its declining stock price despite its great Quality and Value StockRanks.

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David Cheong

Premium Member

29 comments

David Cheong

24th Jan '19

From what you have said I feel like to invest in a tech business (all the more small), you need to have worked in one / several before or worked with one extensively before you truly understand what lurks beneath the surface. Its been a emotional rollarcoaster!

mojomogoz

27th Jan '19

David, I wouldn't have taken a position in Taptica International (LON:TAP) if I had to understand the power of their tech and platform at a moderate to growthy valuation. I can simply see that it has produced real returns and seems to be continuing to do so. So it needs some major smoking gun to come along to justify current valuation - either endemic fraud that reveals earnings/cash to be false or a catastrophic collapse in business. Either of these things might happen but the evidence seem to weight against it.

Fraud seems limited to past action of old CEO and as I've explained above, whilst I'm not claiming saintliness, I reckon Tal has just been part of the cut and thrust of the old space he operated in (different from Taptica) and got caught out in a way that could happen to many. The payment processing and related space was total cowboy country with banks, Visa, etc acting pretty bad too. He did a wrong but there are shades of grey in it and the acquirer of Plimus (Great Hill) seem like they were incompetent...or beyond their competence.

Why would their revenues fall off a cliff? There is no sense that there's stink

The high receivables are explainable through acquisition of Tremor Video DSP. Looks like a nice bit of business by Taptica to grab significant amount of complementary business at a discounted price as looks like seller of Tremor was stressed. Note that the seller changed name from Tremor Video to Telaria after the deal...showing their weak hand and want for change. They sold the business that produced over 80% of their revenues. Telaria listed in US and can look up lots of detail on them. IMO it looks like a bunch of creatives who couldn't handle the tech or the commercial side of their business and needed to sell to generate much needed cash. Paying $50m Taptica got $22m receivables. Reading some employee views in Tremor Video post acquisition can see that Taptica put a lot of pressure on to tighten up commercial practices.

Too early to draw any conclusions on my buy. I've been lucky with timing of purchase and gained over 15% in just a few days. I went in with a full position in a hurry rather than hang about or seek to slice in as I felt the value was so good...but I did think it would likely be a short term loser as sentiment worked its way through.

Hopefully my luck can hold ;) I see this as 150% upside from purchase just as long as the wheels don't come off. And if they can retain some of the operational momentum they have shown in the last few years and I can appreciate more what is good about their tech/platform then perhaps I'mm holding this for multi-bagging opportunity.

William K

28th Jan '19

I note that Taptica is valued at £9.31 on the basis of future cash flow (on SimplyWall.St)- this is rather more generous even than the valuations on Stockopedia. At a current price of £1.68 it could be a great long term investment. The question is whether or not this is the right time to buy. The stock is still on a sharp downtrend for reasons that elude us and it could very well drop to £1.00 before bottoming out. My personal inclination is to wait until the chart shows a sustained uptrend and the price hits £2. Perhaps I am being overly cautious. (I bought Taptica last year at around £4 and made a 20% loss before selling out - once bitten etc)

mojomogoz

28th Jan '19

wilkonz, you are probably right re short term trajectory in that it is likely to chop down as up in the absence of real newsflow...although an update on acquisitions or share buybacks could come very soon and have meaningful impact. I don't claim any valuable perspective over very short term and my view is Taptica International (LON:TAP) is just too cheap with good ongoing operational/growth momentum to be ignored.

I can't see £9.31...that would be delightful but I'm not going to predict. I think a triple is seeable up past 400p assuming growth stays in place and with a growth wobble it should still break through something like 250p. 400p is cheap if it continues operating well but its got a lot of convincing to do so valuation may stay moderate for several years as it proves out. I'm deliberately not exact as I like to judge and assess rather than tuck away to a target. However, as I understand more over time and as/if they perform then I get a chance at a big target like £10. The odds on that outcome I do not know but I'm paid to hold and look right now IMO.

DYOR...I'm a bit of a dodgy contrarian after all ;)

William K

28th Jan '19

All valid points mojomogoz. I lack the courage to be a true contrarian so my entry point remains £2 - hopefully with the tail wind of as somewhat unlikely golden cross.

mojomogoz

28th Jan '19

Haha. I’m not brave enough to buy once it goes up and gleams a bit more. I annoy myself sometimes

muzmanoz

29th Jan '19

https://news.sky.com/story/video-ad-firms-forge-bigger-google-rival-with-260m-merger-11621590

Sky reporting potential merger between Taptica and Rhythmone

mojomogoz

29th Jan '19

Nice...do it...announce it!

Mark Simpson

29th Jan '19

Although this deal looks like being structured as a takeover of RhythmOne (LON:RTHM) by Taptica International (LON:TAP), Sky reporting Taptica International (LON:TAP) shareholders will own slightly more of the combined business.

If we said 55/45 split say, and assume that RhythmOne (LON:RTHM) is roughly accurately priced at £147m market cap (a big if given its history, but we do know Taptica International (LON:TAP) has been hit hard by the loss of reputation of their former CEO), this would give a read-through valuation for Taptica International (LON:TAP) of £180m or £2.69 per share.

60/40 split would imply a valuation of around £3.30 per share. Probably a bit rich but then RhythmOne (LON:RTHM) are getting scale, management and cash flow.

Albertos

30th Jan '19

So two companies valued at dirt levels by the market merge and suddenly we're talking a premium - will be watching with interest from the sidelines.

One thing which does strike me immediately; if I was a shareholder in RhythmOne (LON:RTHM) I think I might be a bit upset given that their MV is £147m and Taptica International (LON:TAP) 's is £115m.

Phil

gus 1065

30th Jan '19

Taptica International (LON:TAP) RNS this morning has a bit more detail than the RhythmOne (LON:RTHM) suggesting a 50.1/49.9% split in favour of Taptica International (LON:TAP) shareholders.

https://www.investegate.co.uk/taptica-int--ltd--tap-/rns/possible-offer-for-rhythmone/201901300701024718O/

Shakespeare called it right in Macbeth Act1 Sc2:

“Doubtful it stood. As two spent swimmers that do cling together and choke their art”.

mercury61

30th Jan '19

The Merger is intended to be structured as an acquisition of RhythmOne by
Taptica and the terms of the combination are intended to be set such that
Taptica will issue 16 new Taptica shares for each 19 RhythmOne shares held by
RhythmOne shareholders. On this basis, following the Merger and on an
illustrative basis, existing Taptica shareholders will hold approximately 50.1
per cent. and RhythmOne shareholders would come to hold approximately 49.9 per
cent. respectively of the Enlarged Group (sources and bases of information are
set out below).

It is important to note that this is an announcement of a possible offer
pursuant to Rule 2.4 of the Code and accordingly there can be no certainty
that any offer for RhythmOne will be made by Taptica.

mojomogoz

30th Jan '19

Gus, beautiful evocative quote...

But as swimming is a work of industry rather than abstraction these swimmer look robust even if they are making headway against an awful current.

The reality will be in the prices on open and a couple of years from now.

JohnEustace

30th Jan '19

I fear this is more suited to a plot by Ben Jonson. It will take a genuine Alchemist to turn this base material into gold.

mojomogoz

30th Jan '19

Hee hee. Takes fools to make a market too....hopefully that’s not me but it might be and it has been at times.

The evidence seems that Taptica International (LON:TAP) performs well and acquires well. There is good rationale to combine both and for it to be accretive. But only time will tell.

They have been a bit of a turd based on price for Taptica and history for Rhythmone. However, as I didn’t even pay the price of a polished turd for Taptica nevermind gold I think I like what’s going down. TBC neither company is one I would buy if positivity and growth were part of the price I paid simply as I’m not capable of assessing the industry well. But at the price I got Taptica I feel I have a chance of being able to work out whether it’s worth a decent multiple in future too.

Albertos

30th Jan '19

The combined MV of both companies last night was £262m. The figure a few minutes ago was £264m - so market currently not seeing any value in the combination.

It is interesting at current SP's the markets have got them very close to 50:50 - value being transferred from RhythmOne (LON:RTHM) to Taptica International (LON:TAP) . That currently looks a hard sell to me.

Phil

Mark Simpson

30th Jan '19

50.1/49.9% split looks symbolic. Although, based on price action, RhythmOne (LON:RTHM) shareholders look disappointed and Taptica International (LON:TAP) shareholders pleased this morning, it does look like the Taptica International (LON:TAP) management are doing this equity deal from an all time low share price, and paying a price that already includes as assumption of much improved trading at RhythmOne (LON:RTHM) this year.

This makes the valuation gap less compelling IMO, and given that I wouldn't have bought shares in RhythmOne (LON:RTHM) prior to announcement then I've sold this morning. Long-term if they can successfully integrate the businesses there may be further upside but this will take some time to appear, and this was always a short-term position for me.

mojomogoz

30th Jan '19

Well. This is more exciting quicker than I thought.

Perspective looking forward and not backwards is always key. For those that have held Taptica International (LON:TAP) beyond a few weeks Taptica must be very frustrating and emotions hot. Holders of RhythmOne (LON:RTHM) are long into resolving their emotions around its past traumas. Obviously, there will be some incredulity that it can now be bought out at a discount.

So, what’s likely to be going on with this strange situation? It seems highly likely that this combination was in motion before old CEO Tal got punted and Taptica stock halved. From a Taptica holder perspective I guess that an acquisition from 300p ish price would have been done with stock as too chunky for cash, but maybe it would have been cash inc an equity raise. Price today in market implies some uncertainty that the deal will take place. Add 30-60p for certainty that deal closes and I suspect that Taptica shareholders are somewhere ballpark to where they would have been pre CEO affair.

How can Taptica make such magic? It seems likely that Rhythmone’s key shareholders inc 3 institutions (Toscafund, Lombard Odier and River& Mercantile) were on an inside track with this deal and they must be now as would be a bit silly not to given the odd terms now in play.

There’s much to find out. Intuitively I feel this is interesting. Rhythmone has shown it is likely it was turning a corner in recent results. The key negative for me is that Taptica are taking on high amount of receivables as it did with Tremor acquisition too. My intuition (again so dodgy) is that both these companies both need Taptica’s commercial chops (as witnessed by free cash flow)

You may make a bit trading out at this point but my gamble is that you are missing the bigger opportunity. Even if this deal falls away it would seem that Taptica is undervalued.

Quick points and I’ll look more deeply when I can later.

mojomogoz

30th Jan '19

Small cap report talked Taptica today. Peeps not impressed. Here's my comment (just putting it into this chat)

https://www.stockopedia.com/content/small-cap-value-report-wed-30-jan-2019-cas-sal-auk-call-beg-yu-botb-taprthm-staf-441678/?comment=41#41

mercury61

4th Feb '19

RNS Number : 9109O
Taptica International Ltd
04 February 2019
Taptica Int. Ltd RhythmOne PLC – Recommended offer for RhythmOne plc by Taptica

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Taptica - True contrarian or potential disaster?

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David Cheong

29 comments

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