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Hot Stock: Media monitoring is big business

It was once easy for Australian companies to keep track of what the press was saying about them by subscribing to Media Monitor’s services.

The advent of social media however made everyone a commentator and potential publisher ,and for many organisations there’s simply too much to track and not enough time.

Isentia is the listed Media Monitors business as well as the aggregator of a number of businesses that were acquired throughout the Asia Pacific before listing. Its big name clients have included CSL, Toyota and the Australian Taxation Office.

In 2015 Isentia acquired a business called King Content in a deal totalling $48 million if all targets are hit over five years.

But it appears at least some of those targets won’t be achieved because the company reported in its latest update that Content Marketing will report an EBITDA loss of $2 million for the first half of this financial year.

While management expects a positive contribution for the full year, the announcement of a half-year loss in the content business triggered a $175 million reduction in the group’s market capitalisation.

Even though EBITDA growth of between 11-15% has been revised lower to high single digits for the group, the share price fall seems an overreaction.

The business in question only contributes a few percent of the group’s EBITDA with Australia and New Zealand Software-as-a-Service and Value Added Services contributing 93% of EBITDA in 2016.

Importantly, King Content represents less than 10% of our valuation, so even a permanent impairment of the division’s prospects would not be significant.

The most recent guidance confirms that the company’s SaaS/VAS divisions are operating in line with management’s expectations and it’s when that which is temporary is treated as permanent that opportunities are presented.

Roger Montgomery is the chairman and CIO of Montgomery Investment Management.

Written by Roger Montgomery

Roger Montgomery

Roger Montgomery is the chairman and CIO of Montgomery Investment Management.

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