Monday, 26 October 2015

MobilityOne’s Half Year performance boasts a post-tax profit for first time since 2012

The signs were here late last year. Management were proactive and enacted a disposal of loss-making and non-core assets. The share price bottomed following an improvement to the cash-flow figures however the balance sheet remained a little uncertain following the increase in net debt. First half 2015 results have revealed that was indeed a one-off increase, with the net debt position likely to fall as has been the trend previously and for the first time since 2012 the company has reported an interim post-tax profit.

It has been the case for a long time that most of the company’s revenue and profit is generated in the latter half of the year. So it’s encouraging to read MBO have generated record revenues in the six month period and solid operating profits of £218,664. This follows an impressive second half performance last year when the company booked £379,688 operating profit in the final 6 months of 2014. The news was poorly received however, the share price has barely moved all summer. The prime reason being liquidity here remains very low with over 78% of the share capital held by long term investors. It’s worth a quick reminder who holds what.
As at 23 June 2015, the Company had been notified of the following beneficial interests in 3% or more of the issued share capital pursuant to Part VI of Article 110 of the Companies (Jersey) Law 1991:

Total of 83,336,323 shares or 78.4% of the capital held by

1. Dato’ Hussian @ Rizal bin A. Rahman (‘Dato’ Hussian’) (53,465,724 shares = 50.29%)
2. Thornbeam Limited (16,048,922 shares = 15.10%
3. Dato’ Shamsir bin Omar (9,131,677 shares = 8.59%)
4. Perbadanan Nasional Berhad (4,690,000 shares = 4.41%)

The freefloat is currently 22,962,457 shares (21.6%). 

Infrequent updates makes for little excitement.  But things can change. As we saw last January the share price moved very quickly for no reason following some buying pressure. Perhaps it was a delayed market reaction, rumour or value traders as over 2.25 million shares exchanged hands.
The market capitalisation is currently less than £2.8 million and as a holder I’m fairly confident this will look cheap in the next 12 months. The question all investors will ask themselves is when will this return investment value.
So looking at the latest set of results MBO turned revenue of £31.3 million in the first half! That’s up over 33% on the same period last year (H114: £23.5 million). This is a huge increase for a small-cap company. What’s potentially more exciting is that second half trading is always higher! Even if we use conservative forecasts we are looking at more than £60 million revenue this year compared to £53 million in 2014. I think it will come in around £65 million assuming they can maintain this momentum. Revenue growth is a key driver and indicates product demand is on the rise. Factoring in the sale of subsidy holdings in the Cambodian and Indonesian operations during March 2014, it’s clear the Group's mobile phone prepaid airtime reload and bill payment business is therefore expanding at its quickest pace, even as the weakening Malaysian Ringgit impacts currency conversion.
The Group recorded an operating profit of £218,664 in H115 compared to £41,137 for H114, an improvement and by no means a paltry amount. The exchange rate has negatively impacted the value of profits in (£) Sterling. MBO’s international remittance services (IRS), of which they had 6 continued to ‘incur losses’ and was subsequently discontinued in the period. We can deduce that had they been disposed of earlier, the headline operating profit would be higher. Certainly in the second half the company results will benefit from the disposal of the IRS and in future trading periods.
For the first time since 2012 MobilityOne have booked a first half post-tax profit of £111,534. This followed a post-tax profit of £73,998 in the final 6 months of 2014 and compares favourably to a loss post-tax of £29,526 in the same period last year. Whilst this figure is less important for assessing cash-flow and growth trends, it’s exciting to see a genuine improvement in company profitability in what is normally the weaker of the two trading periods.
The cash position continued to rise and was up by £247,259 year on year to £1,705,062 (H1, 2014: £1,457,803). This compares to the year end 2014 cash position up by £288,262 during the year to £1,608,255 (H2, 2013: £1,319,993). In the past six months we know the cash position has risen by £96,807 which isn’t so significant. Cash generated and a lot of what was due in trade and other receivables at Year End has been reduced to repay approximately 20% of the debt. Loans (including those owed to Directors) amounted to £3,051,367 at H214 and has now fallen to £2,439,190. A very impressive net debt reduction in six months from £1,443,112 to just £734,128 today.

On a year-by-year comparison we need to keep in mind that loans are still higher by £539,556 (H1, 2014: £1,899,634) largely as a result of that £330,000 purchase of property to serve as company headquarters. The number of receivables due is also higher than the same period last year and balance sheet growth of this kind should ensure there are no liquidity issues. The net debt position continues to fall and that trend looks to be improving at a quicker pace.

The difference in inventories + trade and other receivables (ITOR) vs trade and other payables (TOP) is an interesting comparison for assessing trading performance. According to first half 2015 results ITOR fell to £2,294,609 and TOP rose to £1,397,576. That’s still an overall surplus of £897,033 but lower than 6 months previous (H2, 2014: £1,510,008). The surplus will likely repay loans or become cash on the balance sheet in the next trading period. As we have seen, cash rose by £96,807 and loans fell by £612,177 in the first 6 months of 2015.

Like I mentioned last time “Expect a balance sheet with net debt significantly reduced and much of the receivables due at the end of the 2014 realised into cash.” Net debt is now just £734,128 and with an overall trade surplus of £897,033 we could be looking at a net cash position by year end although more likely to fall in H116.

High revenue, low margins and profitability is due to MBO reinvesting funds back into the company's research & development departments. There could at any time be costs reductions and in fact we did see a fall in Administration costs over the prior period. Gross profits were up in the period but margins lower than the final 6 months of 2014. Much will depend on what the Ringgit does in the coming months but whilst MBO’s market cap is £2.8 million I won’t be swayed to sell if the Ringgit does continue its current trajectory lower.

The HY results are tabled alongside the previous half year trading periods for ease of analysis. I would expect second half operating profits somewhere in the £500-600k bracket. Margins are improving and will continue to do so according to company guidance. Disposing of loss making assets, reducing costs, increasing customer base should all contribute to a very profitable second half trading. The amount of cash/loans on balance can vary but I’m expecting net debt to fall to around £300-350k by the end of the year. 

Saturday, 4 July 2015

MobilityOne looks set for further growth

If you have followed my posts on the LSE forum you'll have witnessed my enthusiasm for this stock throughout 2015. Being a small-cap with only occasional updates it doesn't appear an exciting stock and the often ridiculous spread no doubt puts people off investing here. I would argue that it is still largely unnoticed (Final Results issued after trading hours didn't help matter). However as a recovery play it has proven to be a fine choice.

Since the February breakdown of MBO's Interim Results the stock is trading around 30% up and the general trend has been like this since bottoming in December 2014. There has been opportunities to buy stock as low as 2.4p in the past couple of months and recently the intra-day bid jumped to 3.5

Here are the reasons why I continue to hold MobilityOne and remain confident of further gains in the coming months.

1) MBO turned revenue of £52.96m during 2014, up 3.7% since 2013. This growth comes even after the sale of subsidy holdings in the Cambodia and Indonesia operations during March 2014 to mitigate further losses.

2) As expected MBO turned an operating profit this year of £420,825. This was a substantial improvement on the operating loss recorded in 2013 of (£1,583,642)

3) The Group reported a profit after tax of £44,472 compared to a loss after tax of £2,018,562 in 2013

4) More than 1,000 new agent banking points introduced by one of the Group's banking partner recently in Malaysia is expected to contribute positively to the performance of the Group in 2015

5) Cash position is up by £288,262 during the year to £1,608,255 (2013: £1,319,993)

6) Crucial to understanding performance and outlook there appears to be a significant amount due in in trade and other receivables at the end of the period compared to the previous year. According to the accounts the difference in inventories + trade and other receivables vs trade and other payables has risen to £1,510,008 (2013: £490,307). That's an increase of £1,019,701 during the year and will become cash on the balance sheet during the coming year

7) The net debt position has risen by £711,817 however appears manageable. According to the Final Results cash at year end stood at £1,608,255 (2013:1,319,993) and secured loans and borrowings were £2,977,944 (2013: 1,977,865) for net debt of £1,369,689 (2013: £657,872). This is not a cause for concern however as the company note this increase was due to a slight increase of bank borrowings for working capital purposes and a property loan which was used to purchase the Group's new office in Kuala Lumpur, Malaysia. We know the property loan amounted to approximately £300,000. 

Now add the positive growth in trade receivables due combined with the increasing cash position and add the increase in net debt position it appears liquid assets were up £596,146. If you strip out the £300,000 property acquisition cost because it is non-recurring and won't feature in 2015 cash-flow statements then it appears the company's profitable trade amounted to around £900,000 (although of course the vast majority of this is due).

Headline figures often hide the extent of trends as was the case at the last set of Interim Results. The company's operations were profitable but due to writedowns on balance sheet (non-cash impairments) the company booked a loss. It is not clear just how profitable MBO's operations really are currently given how much it already invests back into the company's research development and losses accumulated from the now disposed of subsidiaries. We should get a clearer picture in September once 2015 Interim Results are announced. Expect a balance sheet with net debt significantly reduced and much of the receivables due at the end of the 2014 realised into cash.

Much like the previous article I have assessed the FY results and broken them down into their respective half year trading periods for ease of charting and analysis.  As you can see in the final six months of the year operating profits were £379,688. Owing to the management decisions to dispose of the loss-making international remittance services and consolidating income streams long established through its organic growth over the past 7 years MBO appear in better shape than ever.

Saturday, 28 February 2015

Mobility One (MBO) trading back in profit

MobilityOne Limited (MBO) is the holding company of a group of companies based in Malaysia, which is in the business of providing e-commerce infrastructure payment solutions and platforms through their technology solutions, marketed under the brands MoCS and ABOSSE. The Company has developed an end-to-end, e-commerce solutions, which connect various service providers across several industries, such as banking, telecommunication and transportation through multiple distribution devices, such as electronic data capture (EDC) terminals, short messaging services (SMS), automated teller machine (ATM) and Internet banking. The Company’s technology platform has been designed to facilitate cash, debit card and credit card transactions (according to the device) from multiple devices while controlling and monitoring the distribution of different products and services.

Full Year Results in the year ending 31st December 2013 stated revenues of £51.06 million but given the nature of high cost operations, they booked a loss after tax of £2.02 million. Still the company managed to reduce loans and borrowings in the year to £1.98 million (down from £2.39 million YE2012). The cash and cash equivalents stood at £1.32 million.

So a low margin, loss making outfit. Ignore it you might say. Well, if you read between the lines the company has been proactive in tackling the weaker outfits in its business group.

The reason for the loss as stated - "the Group recorded a higher loss after tax in 2013 mainly as a result of

1) a write down in value of certain assets

2) losses incurred in the Group's overseas operations in Cambodia, Indonesia and the Philippines

Write-downs are a standard accounting 'trick'. They can mask company profitability assuming they are not recurring. In MBO's case the non-cash loss on assets to offset net profits reduces tax obligations. More on the disposal of assets later. The second point is significant as the company note
- "In view of the continued losses from the operations in Cambodia and Indonesia ... the Company discontinued these operations in March 2014 in order to mitigate further losses in the future from these operations and to generate cost savings for the Group."

So at the end of the first half (HY14) they had disposed of Cambodia and Indonesia operations. This was set to impact second half figures, with reduced revenue for the group but crucially improved margins and cash growth.

Skip forward to August 2014, MBO released an update announcing the purchase of real estate in Kuala Lumpur, Malaysia - their original base of operations. The cost of the office space was a cool £333,550 payment and funded through cash in the bank. The company were intending to refinance the property by effectively remortgaging the majority of equity in it for c£300,000 in order to free up some additional cash.

The market has overlooked this development. Considering MBO were renting previously, they have taken the leap in securing an asset with existing cash which may appreciate in value over time. At the very least, high rental costs have been stripped and will be a forward saving. The loan was expected to be completed by September and the company intend to operate from their new office in early 2015. They will still rent one of the two existing office premises in Kuala Lumpur. The company have assessed their growth market (Malaysia) and are utilising free cash to secure permanent residence (assets) in order to reduce expenses and increase company stability.

Half Year results for 2014 were in line with expectations. Revenues of £23.5 million generated a loss after tax of £30k. To put this into perspective the loss listed in H113 was £120k. An improvement on the same time last year, but still loss making...

However these results include trading figures for Cambodia and Indonesia for the first 3 months which were loss making and as a result MBO expect
- "an improved trading performance in the second half of 2014"
The company also took a non cash write-down (impairment) on disposal of the Indonesian operations in March 2014. If you look at the figures at face value there's not much to get excited about. However MBO made closer to £180k profit in the first half, and here's why...
- "The disposal of the subsidiary in Indonesia in March 2014 had resulted the impairment loss on the amount due to the holding company of £0.56 million. However, the amount is partially mitigated by the gain on disposal of the subsidiary of £0.35 million."
In simple English they booked a £560k NON-CASH impairment, partially offset by a non-cash balance gain on the disposal of a subsidiary for £350k. The difference of £210k is a non cash impairment, effectively a one off write-down included as a loss masking company profitability in order to reduce tax obligations. The impairments were part of the re-organisation away from riskier growth markets and focusing more towards Malaysian demand.

MBO recorded a loss of £30k in the period, so the difference is approximately £180k gain (cash or equivalent). The cash profit of £180k in the first half is impressive as Indonesia and Cambodia were loss making during the first three month. Focus on the cash and cash equivalents and this confirms the picture more or less. Cash increased to £1.46 million (£140k increase in 6 months) aided by  the effect of foreign exchange rate changes, whilst loans and borrowings of £1.89 million reduced by £90k. That's a £230k reduction in net debt during the interim period! This whilst the Cambodian and Indonesian operations where loss making. So what is recorded as a loss on the balance sheet isn't always reflective of the full picture.

The second half performance is expected to yield better results. The purchase of the property will see intangible assets up by £300k and assuming the loan has been processed then this will push up the borrowing total. It's impossible to say if any of the net cash profit will be used to repay existing loans or rather be kept as cash in the bank but we can say with some confidence the net debt position of £430k will have improved in the final six months of 2014.

MBO will likely reduce the net debt position although much will depend on whether they have refinanced the recently purchased property. What is clear is the balance sheet is healthier than six months earlier and the continuing trend of growth through stream-lining operations and generating cash will be recognised at some point by the markets

Current market capitalisation of £2.5 million seems very cheap considering the growth potential in this part of the world. Anyone unsure of Malaysian economic activity should note the country relies to an extent on its domestic oil production and lower revenues may impact growth prospects in 2015. However the price of Brent Oil appears to have bottomed now, trading 20% higher since mid January.

The market has yet to factor in improvements made to the balance sheet since the disposals of certain loss making assets and I'm confident the trading update in March 2015 will spark some interest.