Evil Knievil: Taking the plunge with Pelatro

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Evil Knievil: Taking the plunge with Pelatro

A good contact, Robert Corden, a week ago pointed me in the direction of Pelatro (LON:PTRO). This was helpful since I had taken an initial plunge based on the recommendation of Simon Thompson of the IC perhaps nine months ago. I had then bought around 70,000 shares at 54p. 

I asked Robert to summarise the business of PTRO. Here is his reply: “Very simply they look at the big data from the customers of their telecom clients. Using this they can design loyalty programmes etc and target users thereby creating loyalty to the mobile operator and increase its customer retention. There are a number of different software products which allow them to accomplish this.

Mobile phone companies (obviously) want to keep users. So reduction in customer churn is really important. It is my understanding that the use of PTRO products reduces customer churn. But PTRO is now adding a new service which targets advertising.”

Avoiding churn is a substantial prize as is also recurring fees charged. This is being achieved since inspection of the recently released 31st December 2020 figures show just this. In fact, the sales are slightly down in total on 2019 but I think we can ignore this given the curious commercial climate of the bulk of 2020 and an emphasis on recurring sales. The outlook for 2021 is very positive and a big increase on 2020.

There is heavy capitalisation of internal costs which can be a concern given that there is a temptation to be overgenerous in this department. We investors have to trust the auditors especially considering the materiality of this figure.

Nobody knows what the advertising revenue will be but on a three-year view $15m p.a. is posited as possible. If so the profits thereby generated will be massive – perhaps as much as $10m p.a. This contrasts with the current capitalisation of PTRO of c. $28m at a share price of 53p. TNAV is perhaps a few million USD.

The managers have been successful before and I therefore think it is wise to back them now.

I bought 300,000 shares at 60p last week but quite accept that the price can retreat a bit. If so, I do not mind since this stock is for the patient. (If PTRO fails there will be very little left.) I do not know what the target price should be but by end June, say, it should be smartly higher and on a three-year view we can get anywhere.

Comments (3)

  • John Lewis says:

    You were quite bullish on REA a few months back but the stock has done nothing despite the big increase in the palm oil price. Do you still rate this a buy?

  • Holden Debarg says:

    EDAP is worth a look.

  • philip baker says:

    I am a holder of REA. I hold 50000 preference and no ordinaries. The results from the company are very mixed with a loss per share after financing. It is difficult to see value in the ordinaries if they are still struggling to turn a profit with improved palm oil prices, now at a 10 year high. The management may pay the preference dividend with the caveat that palm oil stays high. So 4.5p on the 30th of June i am not sure of the XD date.
    They do not know when they will make good on the 18p of dividends that are in arrears.
    If ( and it is a big IF ) palm oil stays high and they get this years refinancing of debt away then the December preference dividend will be paid and they will start to make good on the arrears.
    At this stage the ordinaries will look to have much more value and earnings could quickly rise. If i were management i would not pay dividends on the ordinaries when i could buy in company debt which is costing REA 10% or more at current prices. Reduce this expensive debt so that when the next palm oil price fall comes the company is in better shape to ride out the storm.
    I might be tempted to buy more preference shares if the dividend is paid in June and maybe have just a few ordinaries if the dividend is paid in December. I check the palm oil price most days $1235. The preference shares are dropping from the spike on the announcement. The ordinaries are heading towards 50p again.
    MPEVANS which is in the same line of work seems to have had far fewer problems. With good dividends and profits this year and an optimistic forecast for the year ahead.
    If REA could refinance some of their debt at much lower levels the ordinaries could fly but the company seem incapable of this, Maybe MPEVANS could buy REA and retire the expensive debt and make a killing.

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