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Gaining momentum

Mirriad Advertising 13 May 2021 Update
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Mirriad Advertising

Gaining strong momentum

Media

Spotlight research

13 May 2021

Price

50p

Market cap

£139m

Share price graph

Share details

Code

MIRI

Listing

AIM, OTCQX

Shares in issue

278.6m

Net cash (£m) at end December 2020 (excluding leases)

35.4

Business description

Mirriad Advertising generates new revenue for content producers and distributors by creating new advertising inventory in content. Its patented, AI and computer vision technology dynamically inserts products and innovative signage formats after content is produced. Its market-first solution seamlessly integrates with existing subscription and advertising models, and dramatically improves the viewer experience by limiting commercial interruptions.

Bull

Tier 1 platform agreements coming into place.

Growing relationships with brands, agencies.

Patent protection.

Bear

Sales cycles currently long.

Fully functioning platform integration not yet in place.

Profitability not yet on forecast horizon.

Analyst

Fiona Orford-Williams

+44 (0)20 3077 5739

Mirriad Advertising is a research client of Edison Investment Research Limited

Mirriad Advertising’s FY20 revenues grew strongly by 91%, in line with forecasts. The EBITDA loss of £8.6m, a 25% reduction, was notably better than consensus forecast loss of £10.2m. This reflects careful husbandry of resource during the pandemic, after restructuring in FY19. FY20 has been well used in building recognition for Mirriad’s technology among platforms, brands and agencies, culminating in the framework agreement signed with a tier 1 entertainment group in Q420. In Q221, the group added a major global food and beverage brand and is working with all the major agency groups. December’s placing, raising £24.8m net, puts Mirriad in a strong position to continue to develop its technology and position its in-content advertising inventory centrally within the ecosystem.

Market disruption increases opportunity

With Apple and Google’s changes on privacy and targeting and the surge of ad-free and ad-light streaming, the advertising market is in upheaval, while the content industry needs monetisation solutions acceptable to audiences. Mirriad’s in-content proposition opens a new potential revenue stream for content owners, with the added attraction of being able to target audiences by context. The group now has 20 broadcast and digital distribution partners under contract. While the retained element of the Tencent agreement expired in March, campaign delays have meant some revenues deferred into FY21, and a new contract is being negotiated. The US, the largest global advertising market, remains the key growth focus. The music industry also looks to be very promising for FY21, with artists looking to recoup lost income from their inability to tour. The Mirriad Music Alliance has been set up to develop this opportunity with major labels and with brands secured and looking for new channels to reach their audiences.

Operating loss reduced by 25%

Employee costs were the largest line item at 67% of total operating costs in FY20, with FY19’s restructuring contributing to a 7% year-on-year reduction. £2.43m of R&D was expensed, as previously, up 5% on prior year. The focus for spend now is on scalability and integration into the agency tech stacks, which eases a resistance point to wider adoption. The cash burn is currently around £0.7m a month, with net cash of £35.4m (£34.8m if lease liabilities are included) providing a good runway.

Valuation: Consensus shows FY21 acceleration

The FY21 revenue consensus estimate of £6.0m represents further acceleration as adoption broadens and more campaigns are run. The operating loss should narrow, but break-even is likely to be some way off. The recent upgrade of the US listing to OTC QX could generate much more interest in the equity story, as would further announcements of brand and platform partnerships, such as that with PepsiCo.

Consensus estimates

Year
end

Revenue
(£m)

EBITDA*
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

12/19

1.1

(11.5)

(12.2)

(8.1)

0.0

N/A

12/20

2.2

(8.6)

(9.1)

(4.2)

0.0

N/A

12/21e

6.0

(7.5)

(8.0)

(3.7)

0.0

N/A

12/22e

11.0

(4.3)

(4.8)

(2.2)

0.0

N/A

Source: Mirriad Advertising accounts, Refinitiv. Note: *Normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Focus on the US

The revenues from China and Singapore currently dominate the group, as shown below, accounting for 81% of total group revenue in the year. A new deal is being negotiated with Tencent that would remove the fixed cap of £2m in the earlier agreement. After two successful years providing proof of concept, the new arrangement (subject to contract confirmation) should allow Mirriad to scale more widely across Tencent’s video assets.

The US revenue base is building, growing from 7% of group in H120 to 20% in H220.

The geographic revenue split shown below is by origin, with the UK figure also including sales to customers in other territories, such as France and Turkey, where the number of campaigns is also stepping up.

Exhibit 1: Summary results by half year

£'000s

H120

% change

H220

% change

FY20

% change

UK

71

2%

29

-58%

101

-28%

US

62

125%

252

90%

314

96%

China and Singapore

764

185%

1,002

97%

1,766

127%

Total revenue

897

109%

1,283

81%

2,180

109%

EBITDA

(4,658)

(3,968)

(8,626)

Operating Loss

(4,891)

(4,201)

(9,092)

Source: Mirriad accounts

Staff costs were down 7% year-on-year, with other general and administrative costs down by 22%, contributing to the reduction in the operating loss from £12.2m for FY19 to £9.1m for FY20.

Cash consumption for the year was £8.1m, with December’s oversubscribed placing raising £26.2m gross (£24.8m net) and transforming the balance sheet. Net cash at the year end was £35.4m (£34.8m when leases are taken into consideration).

The H121 appointments of a new chief technology officer and the creation of a new role of chief revenue officer would indicate that overheads will be higher in FY21, but this is necessary as the group grows and needs to deliver an efficient and professional service to high-profile and influential clients. We would expect the spend on technology and R&D to step up a degree as the group focuses on integration with existing industry practices. The range of possible financial outcomes for the year remains wide.

Driving the US opportunity

The significant effort being put into growing in the US market is starting to be reflected in revenues, and the major framework agreements already announced are yet to kick in to any meaningful extent. The timing of revenues will be difficult to predict, but we would expect that the number of campaigns run will increase notably as the year progresses. For the advertising industry as well a whole, Q221 is expected to be particularly strong due to the weak comparatives over the early months of the pandemic when ad spend was most curtailed. Q321 should also be a positive backdrop, with like-for-likes starting to get more onerous in the final weeks of the year. Mirriad’s growth dynamics, though, are far more related to its own efforts than market improvement. What is clear, though, is that the amount of available inventory for those ad dollars to buy is increasingly constrained as film and TV consumption continues to migrate away from ad-funded platforms.

Exhibit 2: Financial summary

Year end 31 December, IFRS

£m

2017

2018

2019

2020

INCOME STATEMENT

Revenue

 

 

0.874

0.416

1.140

2.180

Cost of Sales

(0.181)

(0.144)

(0.178)

(0.244)

Gross Profit

0.694

0.272

0.961

1.936

EBITDA

 

 

(10.359)

(11.931)

(11.505)

(8.626)

Normalised operating profit

 

 

(11.272)

(14.429)

(12.174)

(9.092)

Amortisation of acquired intangibles

0.000

0.000

0.000

0.000

Exceptionals

0.000

0.000

0.000

0.000

Share-based payments

(1.675)

(0.176)

(0.360)

(0.360)

Reported operating profit

(12.947)

(14.605)

(12.534)

(9.452)

Net Interest

0.001

0.058

0.023

0.004

Joint ventures & associates (post tax)

0.000

0.000

0.000

0.000

Exceptionals

0.000

0.000

0.000

0.000

Profit Before Tax (norm)

 

 

(11.271)

(14.371)

(12.151)

(9.089)

Reported tax

0.209

0.042

0.056

0.032

Profit After Tax (norm)

(11.089)

(14.329)

(12.095)

(9.056)

Minority interests

0.000

0.000

0.000

0.000

Discontinued operations

0.000

0.000

0.000

0.000

Net income (normalised)

(11.089)

(14.329)

(12.095)

(9.056)

Basic average number of shares outstanding (m)

58.0

104.1

150.2

215.7

EPS - basic normalised (p)

 

 

(19.1)

(13.8)

(8.1)

(4.2)

EPS - diluted normalised (p)

 

 

(19.1)

(13.8)

(8.1)

(4.2)

EPS - basic reported (p)

 

 

(22.0)

(13.9)

(8.3)

(4.4)

Dividend (p)

0.0

0.0

0.0

0.0

Revenue growth (%)

-

(52.4)

174.0

91.3

Gross Margin (%)

79.3

65.5

84.4

88.8

EBITDA Margin (%)

N/A

N/A

N/A

N/A

Normalised Operating Margin

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

2.280

0.770

1.125

0.823

Intangible Assets

1.641

0.170

0.000

0.000

Tangible Assets

0.426

0.414

0.913

0.637

Trade & other receivables

0.213

0.186

0.212

0.186

Current Assets

 

 

27.667

16.466

20.193

36.970

Stocks

0.000

0.000

0.000

0.000

Debtors

1.074

0.974

1.025

1.476

Cash & cash equivalents

26.384

15.204

19.092

35.421

Other

0.209

0.288

0.077

0.073

Current Liabilities

 

 

(2.055)

(1.659)

(1.696)

(2.317)

Creditors

(2.055)

(1.622)

(1.298)

(1.914)

Tax and social security

0.000

(0.037)

(0.025)

(0.013)

Short term borrowings

0.000

0.000

0.000

0.000

Lrease liabilities

0.000

0.000

(0.373)

(0.390)

Long Term Liabilities

 

 

0.000

0.000

(0.423)

(0.204)

Long term borrowings

0.000

0.000

0.000

0.000

Long term lease liabilities

0.000

0.000

(0.423)

(0.204)

Net Assets

 

 

27.892

15.577

19.200

35.271

Minority interests

0.000

0.000

0.000

0.000

Shareholders' equity

 

 

27.892

15.577

19.200

35.271

CASH FLOW

Op Cash Flow before WC and tax

(10.359)

(11.931)

(11.505)

(8.626)

Working capital

0.980

(0.332)

(0.237)

0.165

Exceptional & other

0.000

0.000

0.000

0.000

Tax

0.184

(0.007)

0.248

0.082

Net operating cash flow

 

 

(9.195)

(12.269)

(11.494)

(8.379)

Capex

(1.309)

(1.016)

(0.062)

(0.025)

Acquisitions/disposals

0.003

0.000

0.000

0.000

Net interest

0.001

0.058

0.023

0.004

Equity financing

25.069

1.926

15.290

24.779

Dividends

0.000

0.000

0.000

0.000

Other

(0.202)

(0.169)

(0.389)

(0.333)

Net Cash Flow

14.367

(11.470)

3.367

16.046

Opening net debt/(cash)

 

 

(12.017)

(26.384)

(15.204)

(19.092)

FX

0.000

0.000

0.000

0.000

Other non-cash movements

0.000

0.290

0.520

0.315

Closing net debt/(cash)

 

 

(26.384)

(15.204)

(19.092)

(35.421)

Source: Company data


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