Mirriad Advertising — Pulling out of China, progress in the US

Mirriad Advertising (LN: MIRI)

Currency in GBP

Last close As at 25/01/2023

GBP0.06

1.25 (26.32%)

Market capitalisation

GBP13m

Research: TMT

Mirriad Advertising — Pulling out of China, progress in the US

Mirriad’s decision to exit the Chinese market, following weaker than expected trading and restructuring of the Tencent contract, is a clear setback and we adjust our estimates accordingly. Nevertheless, the opportunity in North America dwarves all other markets, and here the company reports good progress. We look to see evidence of new partners being signed up and the progression of existing ones towards revenue generation to demonstrate that the company is still well placed to monetise its IP and platform.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

TMT

Mirriad Advertising

Pulling out of China, progress in the US

Trading update

Media

27 July 2022

Price

8.7p

Market cap

£24m

Net cash (£m) at 30 June 2022

17.7

Shares in issue

279.2m

Free float

96.1%

Code

MIRI

Primary exchange

AIM

Secondary exchange

OTCQX

Share price performance

%

1m

3m

12m

Abs

(50.0)

(67.3)

(80.5)

Rel (local)

(50.8)

(66.8)

(80.5)

52-week high/low

43.5p

8.5p

Business description

Mirriad‘s market-first in-content advertising solution seamlessly integrates with existing subscription and advertising models, improving the viewer experience by limiting commercial interruptions, whiledelivering dramatically increased reach and impact for advertisers.

Next events

Interim results

August 2022

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Dan Ridsdale

+44 (0)20 3077 5729

Mirriad Advertising is a research client of Edison Investment Research Limited

Mirriad’s decision to exit the Chinese market, following weaker than expected trading and restructuring of the Tencent contract, is a clear setback and we adjust our estimates accordingly. Nevertheless, the opportunity in North America dwarves all other markets, and here the company reports good progress. We look to see evidence of new partners being signed up and the progression of existing ones towards revenue generation to demonstrate that the company is still well placed to monetise its IP and platform.

Year end

Revenue (£m)

EBITDA
(£m)

PBT*
(£m)

Diluted EPS*
(p)

P/E
(x)

Yield
(%)

12/20

2.18

(8.63)

(9.09)

(4.20)

N/A

N/A

12/21

2.01

(11.58)

(12.02)

(3.93)

N/A

N/A

12/22e

2.01

(15.52)

(15.72)

(5.63)

N/A

N/A

12/23e

4.92

(14.75)

(14.90)

(5.34)

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

China retrenchment

Mirriad’s trading update flagged that revenues are expected to be flat year-on-year at £2m in FY22 (Edison estimate was £3.3m), which is attributed largely to weakness in China. As a result, the company will wind down its Chinese operation in time for the end of the Tencent contract, in March 2023. This process will reduce costs by £1m pa with a cost control programme expected to deliver an additional £1.5m in savings by end FY23.

US remains the main opportunity – good progress

The company continues to make good progress with multiple partners in the key North American region, where the total advertising market is estimated to be worth $378bn (Zenith), more than China, Japan, UK, Germany and France combined ($234bn). Management reports receiving an increasing number of substantial RFPs and inbound enquiries. Heightened competition in the streaming market has increased the imperative for media companies to find new monetisation streams, and the addition of non-interruptive, in-content advertising is an obvious route to achieve this. On top of the large, vertically integrated media players, the collaboration with Magnite should start to contribute revenues from the programmatic advertising ecosystem late in the year or early next year.

Valuation: Success in the US the catalyst for upside

Our revised estimates are overleaf with Chinese revenues pulled back significantly, and a cautionary cut to FY22 revenues from other regions, but unchanged in FY23. Costs are also brought down, although not enough to offset profit at the EBITDA level and further funds will be required in the next 12 months to support growth (which was the case before this estimate revision). With limited visibility, traditional multiples are unhelpful. However, we do believe that with good execution Mirriad’s opportunity can support a valuation significantly above the current level. We will look to see announcements of new partners and evidence of progression with existing partners as the key data points to demonstrate that the company is still well placed to monetise its IP and platform.

H1 financial performance

H1 revenues were £577k, down from £1,137 last year. Revenues from China dropped £820k year-on-year to £123k, with COVID-19 lockdowns creating significant weakness in the advertising market, while the restructured agreement with Tencent removed the guaranteed minimum payment threshold.

US revenue grew by 57% to £418k, with a much stronger H2 expected driven by seasonal strength and further progression of the sales pipeline.

Cash at the end of the period was £17.7m (June 2021: £29.8m), which was better than management’s expectations due to cost savings and below budget bonus provisions.

Estimate changes

Our estimate changes are shown below. Given the lack of visibility, these are clearly illustrative rather than definitive. Our revenue estimate for 2022 reflects the shortfall in China, plus a cautionary reduction in other regions, reflecting the duration of the commercialisation cycle. For 2023, the downgrade to our revenue forecast reflects the significant reduction in revenues from China, with other regions unchanged.

Our cost estimates reflect the managed wind down of the Chinese operations, expected to release £1m of savings per annum once complete, together with a broader cost reduction programme expected to reduce costs by a further £1.5m per annum by the end of next year, although this will be somewhat offset by senior hires in the expensive US market.

Our estimates indicate that the group will still have around £8.5m of cash by the year-end (materially unchanged from our previous estimate) but would need to look for additional funding during FY23. If the business executes to plan, we would anticipate that management would be able to announce multiple commercial milestones over the course of the next six to 12 months to give investors confidence in Mirriad’s ability to monetise its IP and platform.

Exhibit 1: Estimate changes

Year end 31 December (£m)

2020

2021

2022e

2023e

Old

New

Old

New

Revenue

2.18

2.01

3.30

2.01

7.75

4.92

Cost of Sales

(0.24)

(0.29)

(0.50)

(0.30)

(1.16)

(0.74)

Gross Profit

1.94

1.72

2.81

1.71

6.59

4.19

EBITDA

(8.63)

(11.58)

(15.00)

(15.52)

(12.85)

(14.75)

Operating profit (before amort. and excepts.)

(9.09)

(12.02)

(15.20)

(15.72)

(13.00)

(14.90)

Exceptionals

0.00

0.00

0.00

(0.15)

0.00

(0.18)

Profit Before Tax (norm)

(9.09)

(12.02)

(15.20)

(15.72)

(13.00)

(14.90)

Profit After Tax (norm)

(9.06)

(10.97)

(15.20)

(15.72)

(13.00)

(14.90)

Net income (normalised)

(9.06)

(10.97)

(15.20)

(15.72)

(13.00)

(14.90)

EPS - normalised fully diluted (p)

(4.20)

(3.93)

(5.45)

(5.63)

(4.66)

(5.34)

EPS - basic reported (p)

(4.36)

(4.22)

(5.73)

(5.97)

(4.94)

(5.69)

Closing net debt/(cash)

(35.42)

(24.50)

(8.54)

(8.55)

4.27

7.17

Source: Mirriad Advertising accounts, Edison Investment Research

Exhibit 2: Financial summary

£m

2017

2018

2019

2020

2021

2022e

2023e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

0.874

0.416

1.140

2.180

2.010

2.014

4.924

Cost of Sales

(0.181)

(0.144)

(0.178)

(0.244)

(0.294)

(0.302)

(0.739)

Gross Profit

0.694

0.272

0.961

1.936

1.716

1.712

4.186

EBITDA

 

 

(10.359)

(11.931)

(11.505)

(8.626)

(11.579)

(15.516)

(14.750)

Operating profit (before amort. and excepts.)

 

(11.272)

(14.429)

(12.174)

(9.092)

(12.019)

(15.716)

(14.900)

Amortisation of acquired intangibles

0.000

0.000

0.000

0.000

0.000

0.000

0.000

Exceptionals

0.000

0.000

0.000

0.000

0.000

(0.150)

(0.180)

Share-based payments

(1.675)

(0.176)

(0.360)

(0.350)

(0.815)

(0.800)

(0.800)

Operating profit

(12.947)

(14.605)

(12.534)

(9.442)

(12.834)

(16.666)

(15.880)

Net Interest

0.001

0.058

0.023

0.004

(0.001)

(0.001)

(0.001)

Joint ventures & associates (post tax)

0.000

0.000

0.000

0.000

0.000

0.000

0.000

Exceptionals

0.000

0.000

0.000

0.000

0.000

0.000

0.000

Profit Before Tax (norm)

 

 

(11.271)

(14.371)

(12.151)

(9.089)

(12.020)

(15.717)

(14.901)

Reported tax

0.209

0.042

0.056

0.032

1.048

0.000

0.000

Profit After Tax (norm)

(11.089)

(14.329)

(12.095)

(9.056)

(10.972)

(15.717)

(14.901)

Minority interests

0.000

0.000

0.000

0.000

0.000

0.000

0.000

Discontinued operations

0.000

0.000

0.000

0.000

0.000

0.000

0.000

Net income (normalised)

(11.089)

(14.329)

(12.095)

(9.056)

(10.972)

(15.717)

(14.901)

Average Number of Shares Outstanding (m)

58.0

104.1

150.2

215.7

279.1

279.1

279.1

EPS - normalised (p)

 

 

(19.1)

(13.8)

(8.1)

(4.2)

(3.9)

(5.6)

(5.3)

EPS - normalised fully diluted (p)

 

 

(19.1)

(13.8)

(8.1)

(4.2)

(3.9)

(5.6)

(5.3)

EPS - basic reported (p)

 

 

(22.0)

(13.9)

(8.3)

(4.4)

(4.2)

(6.0)

(5.7)

Dividend (p)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Revenue growth (%)

-

(52.4)

174.0

91.3

(7.8)

0.2

144.5

Gross Margin (%)

79.3

65.5

84.4

88.8

85.4

85.0

85.0

EBITDA Margin (%)

-1185.0

N/A

N/A

N/A

N/A

N/A

N/A

Normalised Operating Margin

-1289.4

N/A

N/A

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

2.280

0.770

1.125

0.823

0.930

0.806

0.992

Intangible Assets

1.641

0.170

0.000

0.000

0.000

0.000

0.000

Tangible Assets

0.426

0.414

0.913

0.637

0.767

0.642

0.592

Trade & other receivables

0.213

0.186

0.212

0.186

0.163

0.163

0.399

Current Assets

 

 

27.667

16.466

20.193

36.970

27.510

11.026

3.058

Stocks

0.000

0.000

0.000

0.000

0.000

0.000

0.000

Debtors

1.074

0.974

1.025

1.476

1.892

1.214

3.778

Cash & cash equivalents

26.384

15.204

19.092

35.421

24.501

8.695

(1.836)

Other

0.209

0.288

0.077

0.073

1.116

1.116

1.116

Current Liabilities

 

 

(2.055)

(1.659)

(1.696)

(2.317)

(3.087)

(2.290)

(9.268)

Creditors

(2.055)

(1.622)

(1.298)

(1.914)

(2.867)

(2.069)

(4.047)

Tax and social security

0.000

(0.037)

(0.025)

(0.013)

(0.002)

(0.002)

(0.002)

Short term borrowings

0.000

0.000

0.000

0.000

0.000

0.000

(5.000)

Lrease liabilities

0.000

0.000

(0.373)

(0.390)

(0.218)

(0.218)

(0.218)

Long Term Liabilities

 

 

0.000

0.000

(0.423)

(0.204)

(0.412)

(0.412)

(0.412)

Long term borrowings

0.000

0.000

0.000

0.000

0.000

0.000

0.000

Long term lease liabilities

0.000

0.000

(0.423)

(0.204)

(0.412)

(0.412)

(0.412)

Net Assets

 

 

27.892

15.577

19.200

35.271

24.941

9.130

(5.630)

Minority interests

0.000

0.000

0.000

0.000

0.000

0.000

0.000

Shareholders' equity

 

 

27.892

15.577

19.200

35.271

24.941

9.130

(5.630)

CASH FLOW

Operating Cash Flow

(10.359)

(11.931)

(11.505)

(8.626)

(11.579)

(15.516)

(14.750)

Working capital

0.980

(0.332)

(0.237)

0.165

0.560

(0.119)

(0.586)

Exceptional & other

0.000

0.000

0.000

0.318

0.568

(0.150)

(0.180)

Tax

0.184

(0.007)

0.248

0.082

0.026

0.000

0.000

Net operating cash flow

 

 

(9.195)

(12.269)

(11.494)

(8.061)

(10.426)

(15.785)

(15.516)

Capex

(1.309)

(1.016)

(0.062)

(0.025)

(0.159)

(0.075)

(0.100)

Acquisitions/disposals

0.003

0.000

0.000

0.000

0.000

0.000

0.000

Net interest

0.001

0.058

0.023

0.000

0.000

0.000

0.000

Equity financing

25.069

1.926

15.290

24.779

0.044

0.000

0.000

Dividends

0.000

0.000

0.000

0.000

0.000

0.000

0.000

Other

(0.202)

(0.169)

(0.389)

(0.363)

(0.380)

(0.096)

(0.096)

Net Cash Flow

14.367

(11.470)

3.367

16.330

(10.920)

(15.956)

(15.712)

Opening net debt/(cash)

 

 

(12.017)

(26.384)

(15.204)

(19.092)

(35.421)

(24.501)

(8.545)

FX

0.000

0.000

0.000

0.000

0.000

0.000

0.000

Other non-cash movements

0.000

0.290

0.520

0.000

0.000

0.000

0.000

Closing net debt/(cash)

 

 

(26.384)

(15.204)

(19.092)

(35.421)

(24.501)

(8.545)

7.166

Source: Company accounts, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Mirriad Advertising and prepared and issued by Edison, in consideration of a fee payable by Mirriad Advertising. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

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Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

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General disclaimer and copyright

This report has been commissioned by Mirriad Advertising and prepared and issued by Edison, in consideration of a fee payable by Mirriad Advertising. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Research: TMT

Boku — Currency moves mask underlying growth

While currency headwinds reduced growth on a reported basis in H122, Boku expects to report constant currency growth of 14% for total payment volume (TPV) and 7% for Payment revenue. Local payment methods (LPMs) are seeing rapid adoption and are making up a growing proportion of volumes (up 11x y-o-y) and monthly active users (MAUs – up 8x y-o-y). On revised forecasts which reflect the stronger dollar, the stock trades at a large discount to peers. We expect this gap to close as LPMs start to make a material contribution to revenue growth.

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