Monitise backed by Big Three

Mobile payments expert Monitise surged by as much as 17% Thursday after it received the backing of three industry titans and repeated guidance for this year. It’s also confident of making a first cash profit (EBITDA) in 2016, and making substantially more after that.

It is in talks to expand its commercial relationships with the Santander, Telefónica and MasterCard to help develop and accelerate the rollout of its global platform capabilities. What's more, IBM has agreed to deploy its cognitive computing engine, Watson, in support of Monitise's new technology platform. 

Crucially, Santander, Telefónica and MasterCard are pumping £49.2 million into the business through a placing at 30.5p. And, significantly, that was the current market price; no need to offer them a discount. Santander owns 108 million shares, or 5.1% of the enlarged share capital, Telefónica 2% and MasterCard an extra 10.5 million shares, taking its total stake to 1.5%.

That money will be used for business development and to accelerate on-boarding of partners and end users. For their investment, Santander and Telefónica get one of their men on the board. They'll stay there, too, as long as the pair own a joint stake of at least 5%.

Monitise is confident of growing revenue by at least 25% for the year to June 2015, and will invest £35-45 million in the business. As well as the cash profit in full-year 2016, the company is also comfortable with long-term guidance for 2018 of 200 million registered users at £2.50 average revenue per user (ARPU), a cash profit margin of at least 30%, and a sustainable gross margin above 70%.

No wonder. Santander has 107 million checking accounts, while Telefónica has 252 million mobile subs and will roll-out of services in Brail and one other Latin American country in 2015. This is rich pickings for Monitise, which expects to derive transaction and subscription revenue from these partnerships.

This is just what Monitise needed after being rocked recently by Visa’s decision to sell its 5.5% stake. UBS agrees:

All in all, this is clearly good news and should reassure the market after the Visa announcement to undertake assessment of stake in Monitise in order to increase its investment in its own on-house capabilities. New partnerships allow Monetise to gain trust among the market which is fundamental for the future of their business. We expect the news to support the share both in regard to the investment as well as the extension in scope of the various partnerships.

UBS and Canaccord both reckon the shares are worth more - 80p and 85p respectively.

It will be interesting to see whether 40p remain a significant level of technical resistance. It probably will, and further newsflow will be required to cause a breakout. But at least Monitise has the support of industry big-hitters, which shifts the odds of success back in its favour.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.