Tremor International could send shockwaves through the advertising world

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Tremor International could send shockwaves through the advertising world
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Master Investor Magazine Issue 58

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Rebekah Brooks is coming on board this global leader, which trades on a derisory earnings multiple, writes Mark Watson-Mitchell. 

News is always news.

That is not as stupid as it sounds.

In this case the news is about what News Corp is doing. In this instant it is actually causing a tremor or two.

That is a very corny way of introducing readers to a very interesting investment situation that is developing at a company called Tremor International (LON:TRMR).

This expanding little group is a global leader in advertising technologies. It offers its clients digital advertising solutions to get straight to their chosen markets.

Headquartered in Tel Aviv, in Israel, where it also has its research and development facilities, the group maintains offices throughout the US and Canada, Asia-Pacific, Europe, India and Latin America.

With operations in more than 60 countries, the company leverages the latest video, native, and display technology for its clients to reach the most valuable users for every app, service and brand.

It has three main business divisions – Tremor Video, RhythmOne, and Taptica.

Tremor Video, which is one of the largest and most innovative video advertising companies with expanded offerings in advanced TV and second-screen devices, handles brand advertising.

Meanwhile, RhythmOne is a market leader in multiscreen digital advertising solutions. It provides scale, precision targeting, custom creative and unique measurement solutions.

Finally, Taptica helps its clients to reach the most valuable users around the world – anywhere, anytime.

The group offers its services to more than 450 major advertisers – such as Disney, OpenTable, Twitter, Amazon, Zynga and Expedia. It has more than 50,000 supply and publishing partners worldwide.

Earlier this month the group announced that it had agreed to acquire a company called Unruly for £14.5mfrom News Corp. And a big pointer is that News Corp is taking 8.5m new Tremor shares in exchange, giving it some 6.5% of the group’s shares, locked-in for at least 18 months.

Furthermore, Rebekah Brooks, News UK’s CEO, will go on to the Tremor board. Now that really is news!

Unruly is a leading global brand-safe video platform that leverages a combination of proprietary video marketplace technologies and data to deliver emotionally engaging content to consumers. It will fit in very well with the group’s RhythmOne division.

The group, after the Unruly deal, will have 132m shares in issue.

Prior to the deal the leading investors in the company’s equity included: Tosca Fund Management (23%), Schroder Investment (15.2%), Mithaq Capital (14.9%), River & Mercantile (7.3%), Ibex Investors (4.4%), Hargreaves Lansdown (4.2%), and Interactive Investor (4.0%).

The group’s brokers, finnCap, updated their numbers after the latest purchase. For the year to end-December 2019 they estimate that revenues will have increased nearly 18% to £325m, while pre-tax profits may have jumped 23% to £52.5m, giving earnings of 42.5p per share but no dividend.

For the current year the brokers are looking for an Unruly kick-in – taking revenues up a further 30% to £425m, with pre-tax profits up a healthy 32% to £69.3m, worth 45.5p in earnings, which allows for the Unruly dilution.

With the shares trading at around the 156p level, those broker estimates put them out on a ridiculously low 3.6 times historic earnings and just 3.4 times current year earnings.

These shares are going to go a great deal higher yet. And I would say that they are more than capable of hitting their 2017 previous peaks of 465p again.

Even so, I will cautiously only put out an end-2020 target price of 235p, which would be a sinfully low 5.5 times historic.

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