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.