Considering its massive store of recurring revenues, its global services on offer and its incredible potential, Team Internet Group (LON:TIG) has been a dismal performer over the last year.
This time last year the group’s shares were trading at around 155p, since when they have been down to as low as 112p.
Today they are fractionally better at 124.60p – but could they be offering an excellent upside, especially if you follow the dealings of ‘insiders’ in the group’s equity.
The Business
The group creates meaningful and successful connections from businesses to domains, brands to consumers, publishers to advertisers, enabling everyone to realise their digital ambitions.
It is a leading global internet solutions company that operates in two highly attractive markets: high-growth digital advertising (Online Marketing segment) and domain name management solutions (Online Presence segment).
The company’s Online Marketing segment creates privacy-safe and AI-generated online consumer journeys that convert general interest online media users into confident high conviction consumers through advertorial and review websites.
The Online Presence segment is a critical constituent of the global online presence and productivity tool ecosystem, where the company serves as the primary distribution channel for a wide range of digital products.
The company’s high-quality earnings come from subscription recurring revenues in the Online Presence segment and revenue share on rolling utility-style contracts in the Online Marketing segment.
Sales By Business And Region
In the group’s 2022 trading year it turned over $728.2m.
The Online Marketing side was some 78.9% of the total, while Online Presence represented 21.1%.
Europe accounted for 83.5% of the total, North America 9.0%, Rest of the World was 6.5%, while the UK was just 1.0%.
Share Buybacks Not Helpful
On 30th December 2022 it commenced its first £4m Share Buyback programme, for a maximum 28,866,000 shares, or 10% of the equity.
That spend was completed on 18th January last year.
On 15th May it announced another £4m programme:
“The Board considers the Buyback Programme to be in the best interests of all shareholders, given the cash generative nature of the business and the performance at least in line with current market expectations.
It reflects the Group’s renewed capital allocation policy geared towards greater returns to shareholders.”
On 3rd July the group announced a material £30m increase to that second programme, since when the company has been spending around £100,000 a day on buying its stock back, for either being cancelled or being held in ‘Treasury’ to be used for any future acquisition.
It is now close to completing that increased ‘Share Buyback Programme’ – which has actually enriched no-one other than the brokers handling the business each day.
As of yesterday morning, it is noted that the group had repurchased a total of 23,279,377 of its shares.
Compared to a previous average dealing volume of around 400,000 shares being transacted daily, there now seems to be a sudden build-up of interest in the company.
In the first twelve trading days of this month some 9,983,149 shares changed hands.
Perhaps we should now be paying the group some attention.
Trading Update Due Before The End Of The Month
This international internet solutions company, which rebranded itself from CentralNic last September, is due to be announcing on Monday 29th January a ‘comprehensive’ Trading Update covering its 2023 financial year.
Already TIG is clearly stating that the Update will feature its record performance in the final quarter of last year and for the full year too.
Brokers’ View
Analysts Bob Liao and Carl Smith at Zeus Capital consider that the group is capable of ‘outperformance’ following a good final quarter.
Their estimates are for revenues for the year to end December 2023 to have grown from $728.2m to $825.3m, lifting adjusted pre-tax profits to $79.2m ($70.0m) and earnings up to 21.3c (20.0c) per share.
For the year now underway they look for $868.9m turnover, $84.7m profits and 25.1c in earnings per share.
In an early October Tech Sector Review, analyst Michael Hill at Cavendish Capital had a 350p Price Objective on the shares, looking for the group’s strong growth to be powered by its Online Marketing business.
His estimates for 2023 were for $815.3m revenues, $79.8m profits and 22.4c per share in earnings.
For this year he goes for $888.8m revenues, $91.1m profits and 24.4c per share in earnings.
Over at Edison Investment Research, analyst Max Hayes has put out estimates that the group in 2023 will have turned over $833.7m, with profits of $80.7m, and earnings of 21.1c per share.
For the current year his figures indicate $909.6m sale, $89.3m profits and earnings of 24.7c per share.
Edison considers that the rating of the group’s shares does not fully reflect the impact of the share buybacks and its growth prospects.
Max Risk Plays
Former army officer and stockbroker, Max Royde has been back into the market again this year, picking up TIG stock.
51-year-old Royde, who established Kestrel Investment Partners with Oliver Scott way back in 2009, was previously a Managing Director at brokers Peel Hunt, where he focussed upon the Technology sector.
Kestrel is a very interesting business in itself.
Together with their colleagues, Scott and Royde source the best investment ideas and structure the most suitable vehicles for new investments, whilst also driving the strategic improvement at investee companies, both as a minority investor and board member.
Kestrel aims to achieve long-term capital appreciation by investing in a concentrated portfolio of quoted small and micro-cap companies.
Each of its core investment holdings meet strict investment criteria.
The strategy is to identify, access and invest in companies that are undervalued and offer significant growth potential.
It then works closely with management teams to unlock latent value and deliver long-term capital growth and liquidity.
Royde, who was a director of Gresham Technologies and Aferian, holds a number of board positions, including IQGeo Group which on Monday of this week guided results ahead of expectations, with its shares soaring in response.
Back Into The Market, Follow The ‘Insiders’
After a near two-month break in its dealing activity, on behalf of discretionary client accounts, Kestrel Partners has this month acquired more shares.
Kestrel Opportunities, in which Royde has a beneficial interest, now holds 17,926,535 shares in TIG.
Together with the 48,876,324 shares that Kestrel clients hold in the internet company, that adds up to a significant stake of 66,802,859 shares, representing 25.12% of its equity.
Oh, and by the way, since 2021 Max Royde has also been a non-executive director of Team Internet Group, so we should perhaps pay attention to his market movements, especially ahead of the Trading Update at the end of this month.
The Equity
There are around 265,380,707 shares in issue, apart from those 23,279,377 shares held in Treasury.
Amongst the larger holders Kestrel Partners is the biggest (25.12%), while others include Inter.services (12.01%), Slate Investments (9.54%), Erin Invest & Finance (5.20%), Chelverton Asset Management ((4.60%), Schroder Investment Management (4.28%), Maitland Asset Management (4.26%), CentralNic Employee Benefit Trust (4.23%), JTC (Private Banking) (3.81%) and Herald Investment Management (2.79%).
My View – Setting A New Target Price For The Shares
Yes, I have been really disappointed with this ‘money machine’ and its share price performance over the last year but I have not, yet, given up hope that it will recover its upward path.
As for the reason of the share buyback programmes, as a way to give greater returns to group shareholders – well I have not seen any evidence of that happening over the last year, especially with the shares being down 28% at one stage and off over 19% in that time frame and still no dividend from the cash generative business.
The shares closed last night at 124.60p, at which level the company is valued at £331m.
Trading on a mere 6.82 times estimated historic and on just a multiple of 5.79 for current year earnings, these shares represent an excellent participant in any growth ‘undervalue’ portfolio.
The ‘comprehensive’ Trading Update on Monday 29th January could well prove a significant turning point for the group’s shares, which hopefully will see the market giving it a far, far better rating.
In the hope that good news could be forthcoming, I am now setting a new Target Price for the shares of 156p in 2024, while having a certain confidence that a major re-rating could help to boost them to well over the 200p level before the year is out.
(Profile 12.07.21 @ 89p set a Target Price of 110p*)
(Profile 17.01.24 @ 124.60p set a new Target Price of 156p)
(Asterisk * denotes that Target Price has been achieved since Profile publication)