InternetQ looks like a bargain

InternetQ rocketed as much as 10% Wednesday after the owner of mobile marketing platform Minimob and music streaming service Akazoo revealed a surge in fourth-quarter revenue. Margins improved in the second half of the year, too, and broker Canaccord Genuity has upgraded earnings per share estimates both for 2014 and the current year by 5%.

A boom in demand for mobile marketing had revenue up almost 27% in the final three months of last year to €130 million, and with margins also improving, InternetQ made an adjusted cash profit of more than €22 million and adjusted profit after tax of €14 million. It ended the year with €12 million of cash on the balance sheet, or about €1 million net cash.

B2B, or mobile marketing, made up 79% of sales and is in hot demand. Global ad spend is tipped to increase by 5% this year to $545 billion, driven largely by mobile. InternetQ's Minimob platform now has over 400 million installations and is fully integrated into 138 advertising networks/demand-side platforms. That helps it monetise its digital advertising inventory.

InternetQ has been pumping money into music streaming service Akazoo, too, and it's had success here, too. It reports "good results" from its offering with MTN and has launched lots of new partnerships in Asia. It still plans to launch Akazoo in another western European market and announce new strategic partnership deals in the Asian market by the end of the first quarter of 2015.

"The remarkable take-up of Minimob provides a significant competitive advantage, while management remains confident that it can roll out Akazoo profitably into larger Western markets, benefiting from a materially lower customer acquisition cost than its competitors," explains Canaccord.

It's why the broker has upgraded cash profit forecasts for 2014 to €22 million, giving adjusted pre-tax profit of €14.4 million and EPS of 33.9 euro cents. This year it looks for €27.9 million, €18.9 million and 41.7 cents respectively.

As we've said here before, there's a clear valuation argument in favour of InternetQ at these levels.

After the number changes, and with the shares at 294p, InternetQ trades on just 9 times forecast earnings for 2015. Next year it's only 8.3. That's incredibly cheap for a company tipped to growth EPS by an average of 16% for the next two years. "It is even on a projected 6.9% free cash flow yield, as we expect capex to be flat in FY15 (falling as a % of profits) and driving up free cash flow conversion rates," writes Canaccord which sticks with its 510p target price.

Having broken above the 200-day moving average and technical resistance at around 280p, they're certainly heading in the right direction. Full-year results are due on 31 March.

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.