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.

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.
 

Market Update Time

A long time ago I set myself a goal of summing up weekly market movements and events. As with all things secondary, real life takes precedence. New job, family commitments and a lack of spare time didn't help matters. Now I'm keen to pick up blogging where I left off. I should add I've not been completely absent from the market during this time, you can view my posting history on the LSE bulletin board and continue to track daily posts if you're interested. There are some great characters and knowledgeable investors over there. From today I will be pouring more effort into maintaining this blog, first lets' assess the stock picks suggested last year.


Advanced Computer Software (ASW)
In December 2013 I wrote a piece explaining the merits of tech-play Advanced Computer Software, another consultant and provider of efficient business software. Advanced Computer Software poised for further gains - that turned out to be a conservative statement. In the year to date (since publishing the article) shares are up 27% trading at 120p. There have been opportunities to trade in and out during the period, in particular the dip in mid April before shares surged to their 52 week high in late May.

ASW Share Price Movements
Dec 2013 - Sep 14

The surge was buying in anticipation of excellent Final Results which were issued a few days later. Since then shares have bounced around the 116-120 range. ASW now command a market capitalisation of £567.68m today little changed from earlier this year. So why are shares continuing to perform around this level?

Well growth has been impressive to date, but concerns over continued similar performance are weighing on shares. Over the past five years ASW have averaged compound annual growth of 46% revenue, 45% adjusted EBITDA and 53% cash generation.

Since then we have received the Half Year update this week. The figures are less impressive this time around but consistently positive nonetheless, with forecasts suggesting continued growth but at a reduced rate. As Vin Murria, Chief Executive puts it they now have "a very strong platform for long term sustainable growth".

As the figures and Murria's comment suggest the initial buzz surrounding the CSH takeover is over and they now have a platform from which to continue growth. The initial exciting period is over but that does not mean the company have peaked.
 
Needless to say ASW continues to impress in its operations and the reducing net debt position will only increase confidence in the stock. My view here is a continued hold. A lack of contract wins this quarter won't impact recurring revenue streams but limits growth potential so beware of overzealous broker targets. If you are able to pick up shares below 116p take the opportunity and likewise reduce some of your holdings above 124p. This will be a slow burner but one which will appreciate over the coming years.

 Amara Mining (AMA)
I first tipped Amara back on 8th November 2013 following the announcement of a cash for stock swap with Amlib in a piece titled Amara Mining - Speculative Deal Increases Cash Reserves - that didn't prove to be the cheapest time to buy however as shares fell from 14.25p to 11.5p just one month later. The Q3 update threw in a few surprises that the market didn't appreciate which had people selling shares for below 12p! But early in the December, the trend reversed, pushing the stock up in anticipation of the Yaoure Resource Update. Incredibly this provided little upside on the day of announcement.

Shares rose to 16.5p by early January before falling again in the lead up to Q4 results. There was a little movement during February but the important events occurred in the following month, with the Preliminary Economic Assessment (PEA) released on the 12th March shares jumped back to 16.5p on the day and continued to rise for the next 4 trading sessions peaking at 19.13p! Following this breakout the shares have traded above 15.5p ever since.

Amara Mining Share Price Movements
Nov 2013 - Sep 2014

The share price continued to rise in May and as expected Amara's operational results were much improved in the Q114 update. This was the first time I can remember Amara actually retaining share value in the lead up to quarterly results. On the day of the AGM the share price rose sharply and by the 12th June the asking price was over 20p per share. This may have been due to the decision made to cancel the reporting issuer status in Canada. Ingalls & Snyder LLC purchased a cool 1.3m shares on the 20th June which no doubt sparked new interest in the share sending it higher in the days after.

July was a superb month with the share price climbing to 23.88 before briefly falling on fears the Ebola Virus might impact Amara's operations. On the 6th August the company issued a statement concerning the Ebola risk alongside general drilling results.

"The Company's operations in West Africa remain unaffected by the Ebola virus.  There have been no confirmed cases in Côte d'Ivoire and Burkina Faso and John McGloin visited Yaoure last week along with other senior management.  There are travel restrictions and enhanced hygiene requirements in place in Sierra Leone, however at present this does not affect the Company's strategy for Baomahun as the project is in an evaluative phase."

Shares rallied, although it is worth noting that the company announced its production operations would cease the same day. The closing of Kalsaka was not due to take effect until later this year so came as some surprise. Given the risks associated with neighbouring states and the volatility in the gold price, the market seemed pleased that Amara brought forward the cessation, opting to instead retain cash. Little wonder as we later heard that Kalsaka total cash costs, including royalties, in Q2 2014 were US$1,455 per ounce, a loss of US$2.4 million over the period.

Focus is now being directed to Yaoure, the largest gold deposit in Côte d'Ivoire, with a 6.3 million ounce Mineral Resource. However production is still some way off and that's not accounting for any delays. Already we've heard that International cocoa exporters have restricted staff movements in the country, such is the growing fear of Ebola. This follows the closing of its borders with Guinea and Liberia. In the meantime cash depletion should be at a lower rate but may still cause a headache for shareholders.

It should be noted that following the deal with Amlib we are now after all disposing of exploration licences and the Drilling Contractors. Cash conservation and little desire to invest in new projects seems to be common right now amongst many of AIM's junior miners and who can blame them with gold being manipulated down to current levels.

"Amara has taken the decision to enter into an agreement to dispose of its assets in Liberia, which include three exploration licences (Cestos, Kle Kle and Zwedru), and Amlib Drilling Services Liberia. Exploration activity at Yaoure and Baomahun is expected to generate stronger value for shareholders and thus Amara is focusing its cash and management attention on these projects."

Amara is up 44% since my initial buy in of 14.25 and my plan now is to sell into any support above 23-24p. I expect we will retest 15-16p at some point next year as our cash position falls - this is a buying opportunity if you're in it for the long haul. The second mineral resource update is due in December 2014 and shares will likely rise in anticipation. After that Yaoure won't be producing until late 2015, the market knows it... even then cash-burn will continue until operations can be optimised. Baomahun is on hold but remains a viable future mine. The gold price is less of a concern right now. There is time to trade the swings before this becomes a producer once more.

The company has published the following results and slides on their website today:

Yaoure Drilling Results
Yaoure Central Zone Section
Yaoure CMA Zone Sections
Yaoure borehole plan
 

Disclosure: I hold shares in ASW and AMA. My blog posts are a means of tracking performance and not a recommendation to buy/sell. Please always do your own research.

have no business relationship with any company whose stock is mentioned in this article. - See more at: http://www.shareprophets.advfn.com/views/7846/vin-murria-delivers-with-another-strong-showing-by-advanced-computer-software#sthash.Mas4O7u0.dpuf