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Buy Zamano at 25.5p THE BUSINESS Founded in 2000 at the height of the technology boom, Zamano is a mobile phone content provider. The company’s offerings include ringtones, wallpapers, interactive services such as competitions, music and games, amongst others. Zamano listed on AIM in October 2006 and on the Irish Enterprise Exchange, the Irish equivalent to AIM, in February 2007. The company operates a hybrid business model, with one side, Business to Customer, focusing on delivering applications and content directly to consumers through its multiple brands and websites on its own platform, via SMS or WAP. The second strand to the company, Business to Business, provides applications and content to its business partners who in turn target consumers. The global market for Zamano’s services was estimated to be worth around $16 billion in 2006 and is forecast to grow to around £23 billion per annum by 2010. The market is being driven by several factors including the improved functionality of mobile phones, as well as the falling cost of accessing the internet via a mobile. Calendar 2007 was a transformation year for Zamano as it completed two major acquisitions. In April last year the company acquired Eirbourne Text Promotions, an Irish based mobile content company active in the UK, Irish and Australian markets. Eirborne has a range of mobile entertainment services, including music, comedy, video, and games, which it provides to over 100,000 subscribers via its website Veronica’s MoCo. Eirborne also provides text and picture messaging services for online communities and develops applications for use on mobile phones such as auctions, competitions and lotteries. In November came a much larger acquisition in the form of digital mobile entertainment provider, Red Circle. The Dublin based company brought with it over 500,000 active subscribers who like Eirborne have customers based in the UK, Australia, and Ireland, but also in the US. The deal trebled Zamano’s active subscriber base.
FINANCIALS In the financial year to 31st December 2007 Zamano managed to double its revenues to €24.7 million. This was on the back of first time contributions from the two acquisitions as well as organic growth. EBITDA rose by 44% to €3.5 million and pre-tax profits by 18% to €2.6 million. Adjusted diluted earnings grew by 15% to 4.6 cents, rising at a lower rate than EBITDA and pre-tax profits due to an increase in the average number of shares in issue after the IPO in 2006. This was the sixth consecutive year of revenue and profit growth. At the end of the period Zamano had cash in the bank of €12.1 million, however €6.2million of this is assigned for a final payment to Eirborne shareholders and €1 million is for payment to Red Circle. Adding in debt used to finance the acquisitions Zamano had net underlying net debt of €10.1 million at the end of the period. Going forward we expect the rapid growth to continue. As the company benefits from a full year’s contribution from the recent acquisitions, as well as continuing organic growth, revenues are set to more than double to €55.3 million in calendar 2008. A high proportion of that income is already visible due to the company enjoying a mainly subscription based revenues stream. Adjusted pre-tax profits are set to rise to €6.5 million and earnings to 6.3 cents. In 2009 those figures are set to rise to €67 million, €8.5 million and 8.1 cents respectively. On that basis, using the current exchange rate of £1: €1.27, the shares trade on a current year multiple of just 5 times earnings falling to just over 4 times next year. For a company that has consistently demonstrated year on year growth, is operating in a growing market and has a comfortable debt position we think that rating is far too low. BUY. Key Data EPIC: ZMNO
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