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On the cusp of potential widespread adoption

Mirriad Advertising 11 September 2020 Update
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Mirriad Advertising

On the cusp of potential widespread adoption

Media

Spotlight research

11 September 2020

Price

22p

Market cap

£47m

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Share details

Code

MIRI

Listing

AIM

Shares in issue

213.1m

Net cash (£m) at end August 2020

13.3

Business description

Mirriad Advertising creates new revenue streams 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.

Bull

Significant, global addressable market.

First to market with protected and commercial offering.

Strong pipeline of clients and business.

Bear

Long sales cycles.

Markets nervous of COVID-19 impact.

Profitability not yet in current forecasts.

Analyst

Fiona Orford-Williams

+44 (0)20 3077 5739

Mirriad Advertising is a research client of Edison Investment Research Limited

Mirriad Advertising’s H120 numbers show strong top-line progress, up 109% on H119 and 26% ahead of H219. H120 revenues were up over 185% year-on-year in China and Singapore, with market confidence rebuilding. There are very promising new agreements in place with US media owners, with early moves in large adjacent markets, such as music video. There are advanced negotiations ongoing with Tier 1 entertainment platforms. These prospects significantly increase the attraction of Mirriad’s proposition to advertisers. Cash burn is now under £1m per month, with end-August cash of £13.3m (no debt). Market forecasts for FY20–22 are unchanged.

Growing customer base

The Tencent partnership (see July Initiation) delivers minimum monthly revenues, giving Mirriad a base from which to develop further commercial interests. It also gives validation through successful execution; over 40 brands ran campaigns in June. The group signed agreements in the US with Condé Nast, Tastemade and Meredith in H120, and has since added Fuse Media. It can now offer brands and agencies substantial online audiences and has already run campaigns for P&G. Management is working to broaden the group’s operations, initiating partnerships with ZigZag Productions and with B-Unique Records. Music video is an interesting opportunity, given artists’ current inability to tour or generate much merchandising income. COVID-19 has stretched the conversion timeline of prospects to contracts. We expect more progress in H220, given the high level of engagement being achieved with global agency groups, brands, platforms and content partners.

Operating loss reducing

With a growing top line and the benefits of last year’s restructuring, as well as some COVID-19 related savings (£0.3m of the £1.8 reduction in administration expenses), the group operating loss reduced from £7.2m in H119 to £4.9m in H220. R&D (fully expensed) was 7% up on H119, at £1.2m. This investment will continue to be crucial to maintain the group’s technological advantage and ensure that the Mirriad content can be seamlessly integrated with client delivery platforms. The group’s cash burn is now less than £1m per month (as previously disclosed). With cash balances of £14.4m at end June and £13.3m by end August, there should be a sufficient runway until at least Q321 before further funding may be needed.

Consensus forecasts unchanged; FY21 acceleration

The FY20 revenue forecast of £2.2m implies £1.3m in H2. This should be possible, given the momentum in interest within the traditional advertising space and newer applications. With growing awareness and adoption, the upward trajectory could be steeper. The recent US OTC listing could generate greater interest in the equity story.

Consensus estimates

Year
end

Revenue
(£m)

EBITDA*
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

12/18

0.4

(11.9)

(14.4)

(13.8)

0.0

N/A

12/19

1.1

(11.5)

(12.2)

(8.1)

0.0

N/A

12/20e

2.2

(11.2)

(11.6)

(5.4)

0.0

N/A

12/21e

6.0

(9.8)

(10.1)

(4.8)

0.0

N/A

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

Well managed: growing top line, reducing losses

The revenues from China and Singapore currently dominate the group, as shown below, accounting for 85% of total group revenue. Significantly increasing activity in the North American market has yet to translate into recognised revenues. We would expect these to step up in H2 as the newly won clients mentioned above start running their initial campaigns. Revenues from the UK and Europe are also yet to take off, but this again belies the amount of underlying activity.

Exhibit 1: Summary interim results

£'000s

H119

% change

H219

% change

FY19

H120

% change

UK

70

800%

70

117%

140

71

2%

US

27

103%

133

38%

160

62

125%

India

39

0%

(1)

-104%

39

-

-100%

China and Singapore

268

306%

508

252%

776

764

185%

Brazil

25

-25%

-100%

25

-

-100%

Total revenue

429

257%

710

140%

1,140

897

109%

EBITDA

(6,803)

(4,702)

(11,505)

(4,658)

Operating Loss

(7,179)

(4,995)

(12,174)

(4,891)

Source: Mirriad accounts

The group restructuring that took place in H119 significantly reduced the administrative expenses. The largest element of the £1.8m reduction was from staff costs, which reduced £874k against the comparative period. Advantageous exchange movements also gave a boost of £201k. Lower travel and expenses and rent, more COVID-19 related, saved a further £262k. R&D of £1.2m was slightly ahead of prior year (£1.1m) but represents an investment in the future growth potential of the business.

Mirriad had cash of £14.4m as at the end of June and the statement indicates that this had reduced to £13.3m by the end of August, implying a further slowdown in the rate of cash burn. On this trajectory, the group should have no need of additional external funding before Q321 at the earliest.

Clear strategy for growth

Management has articulated its growth strategy with some more granularity. There are three core elements:

1.

Expand partner footprint including Tier 1, drive adoption with advertisers, exploit new sources of content for scale.
The campaign to generate engagement with the relevant industry parties has been (and continues to be) wide-ranging and aims to be exhaustive. Management reports that it has established relationships with all five large agency holding companies, 55% of the 100 largest global advertisers, 80% of the leading global entertainment companies and numerous potential partners across the film and tv, and music businesses. Importantly, Mirriad has indicated that it is in negotiations with six of the seven largest US entertainment platforms, five of which are covered by non-disclosure agreements.

2.

Extend business model to include a direct-to-advertiser/agency marketplace approach.
To become a true part of the advertising ecosystem, Mirriad should offer a programmatic advertising solution, totally integrated. Mirriad is engaging with the key agency groups, with the aim of becoming a line-item within marketing budgets.

3.

Establish Mirriad as the leader in next generation brand and advertising experiences, powered by ground-breaking technology and innovation.
This would include being able to serve embedded advertising content in real time (or so close that the latency is imperceptible). Research commissioned by the group has demonstrated clear improved awareness and higher perceived brand value, particularly where the embedded content reinforces other advertising messages. It is also seen as considerably less intrusive by viewers, who no longer need to select to ‘skip ad’. The avoidance of brand safety/contextuality issues also adds to its attractions. Our July note contains more detail on Mirriad’s target markets and traction.

Mirriad’s technology currently stands at the cusp of more widespread adoption and is demanding attention. If it can move to the next phase and continue to prove its efficacy and scalability, the growth potential is substantial. The current market forecasts are shown below.

Exhibit 2: Market forecasts

FY19

FY20e

FY21e

FY22e

Revenue (£m)

1.1

2.2

6.0

11.0

Adjusted EBITDA (£m)

(11.5)

(11.2)

(9.8)

(6.8)

Adjusted PBT (£m)

(12.2)

(11.6)

(10.1)

(7.1)

Adjusted EPS (p)

(8.1)

(5.4)

(4.8)

(3.3)

Source: Refinitiv

CEO Stephan Beringer discusses the group’s brand and platform relationships, and its commercial prospects, in more detail in the video below.

Exhibit 3: Edison TV exclusive interview with CEO Stephan Beringer

Source: Edison Investment Research

Exhibit 4: Financial summary

£'000s

2017

2018

2019

Year end 31 December

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

874

416

1,140

Cost of Sales

(181)

(144)

(178)

Gross Profit

694

272

961

EBITDA

 

 

(10,359)

(11,931)

(11,505)

Normalised operating profit

 

 

(11,272)

(14,429)

(12,174)

Amortisation of acquired intangibles

0

0

0

Exceptionals

0

0

0

Share-based payments

(1,675)

(176)

(360)

Reported operating profit

(12,947)

(14,605)

(12,534)

Net Interest

1

58

23

Joint ventures & associates (post tax)

0

0

0

Exceptionals

0

0

0

Profit Before Tax (norm)

 

 

(11,271)

(14,371)

(12,151)

Profit Before Tax (reported)

 

 

(12,947)

(14,547)

(12,511)

Reported tax

209

42

56

Profit After Tax (norm)

(11,089)

(14,329)

(12,095)

Profit After Tax (reported)

(12,738)

(14,505)

(12,455)

Minority interests

0

0

0

Discontinued operations

0

0

0

Net income (normalised)

(11,089)

(14,329)

(12,095)

Net income (reported)

(12,738)

(14,505)

(12,455)

Basic average number of shares outstanding (m)

58.0

104.1

150.2

EPS - basic normalised (p)

 

 

(19.11)

(13.76)

(8.05)

EPS - diluted normalised (p)

 

 

(19.11)

(13.76)

(8.05)

EPS - basic reported (p)

 

 

(21.95)

(13.93)

(8.29)

Dividend (p)

0.00

0.00

0.00

Revenue growth (%)

-

(52.4)

174.0

Gross Margin (%)

79.3

65.5

84.4

EBITDA Margin (%)

N/A

N/A

N/A

Normalised Operating Margin

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

2,280

770

1,125

Intangible Assets

1,641

170

0

Tangible Assets

426

414

913

Trade & other receivables

213

186

212

Current Assets

 

 

27,667

16,466

20,193

Stocks

0

0

0

Debtors

1,074

974

1,025

Cash & cash equivalents

26,384

15,204

19,092

Other

209

288

77

Current Liabilities

 

 

(2,055)

(1,659)

(1,322)

Creditors

(2,055)

(1,622)

(1,298)

Tax and social security

0

(37)

(25)

Short term borrowings

0

0

0

Other

0

0

0

Long Term Liabilities

 

 

0

0

0

Long term borrowings

0

0

0

Other long term liabilities

0

0

0

Net Assets

 

 

27,892

15,577

19,996

Minority interests

0

0

0

Shareholders' equity

 

 

27,892

15,577

19,996

CASH FLOW

Op Cash Flow before WC and tax

(10,359)

(11,931)

(11,505)

Working capital

980

(332)

(237)

Exceptional & other

0

0

0

Tax

184

(7)

248

Net operating cash flow

 

 

(9,195)

(12,269)

(11,494)

Capex

(1,309)

(1,016)

(62)

Acquisitions/disposals

3

0

0

Net interest

1

58

23

Equity financing

25,069

1,926

15,290

Dividends

0

0

0

Other

(202)

(169)

(389)

Net Cash Flow

14,367

(11,470)

3,367

Opening net debt/(cash)

 

 

(12,017)

(26,384)

(15,204)

FX

0

0

0

Other non-cash movements

0

290

520

Closing net debt/(cash)

 

 

(26,384)

(15,204)

(19,092)

Source: Company data

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