Synchronica
www.synchronica.com TICKER: SYNC EXCHANGE: LSynchronica is a UK based company which specialises in the next generation of mobile messaging. The company is a leading developer of social messaging and networking technology and services; more than eighty mobile phone operators and several global device manufacturers are clients. Synchronica's flagship product is 'Mobile Gateway'; this product encompasses all mobile phones that are currently in use, providing a capacity for push email, synchronization, social networking services and instant messaging, bridging the email divide on a global scale.
LATEST REPORTS
Synchronica is a UK-based company specialising in next generation mobile messaging and social networking technology and services. Blue chip customers and distributors include Huawei, NSN, mobile operators, and device manufacturers.
It has announced the genuinely transforming acquisition of Nokia's mobile operator branded messaging business for $25m.
The deal, along with a professional services contract to support Nokia's mobile messaging activities, immediately trebles Synchronica's end user base and revenues, turns the company profitable, adds North America to Synchronica's geographic coverage, adds additional technology and patents, and provides new growth opportunities. If approved at a General Meeting on July 28th it will be highly accretive.
The deal will transform Synchronica's financial outlook, with the five months contribution increasing our FY11 revenue and EBITDA forecasts by 75% and 145% respectively, with our revenue, EBITDA and EPS forecasts all at least doubling in FY12 and FY13.
In addition, the deal markedly strengthens the valuation case for Synchronica, by bringing forward meaningful profitability, improving the quality and visibility of revenues, and improving the company's geographic reach and product capability.
FY12 and FY13 forecasts support a share price of 50-66p and 70-97p respectively, versus 18p today. The value of Synchronica to a major strategic buyer has also increased given its greater scale and presence in all major continents.
2010 preliminary results cap a year of considerable progress by the company, in financial, product, distribution and customer terms. As already flagged up, revenues rose 85% to $10.9m (see our 14th February note), whilst EBITDA losses fell from $2.9m to $0.8m. The large number of contracts signed in Q4, and the subsequent working capital impact, meant an increase in operating cash outflow for 2010, from $7.4m to $9.1m. However, this should reverse in 2011.
The $0.25m Neustar IM acquisition announced in February looks increasingly like a very profitable deal for the company, with Neustar's next generation mobile instant messaging technology providing a door opener for Synchronica into developed market mobile operators, and encouraging feedback from Neustar's 11 customers on potential upgrades to a fuller suite of Synchronica services.
The results also highlight Synchronica's strategic value, with strong sales growth and a fourfold increase in customers since the end of 2009. The outlook is very positive given the favourable mobile macro trends, the strength of the company's technology, its sales pipeline, the expansion orders that are starting to come through from the various contracts signed over the last 24 months, and the growing importance in sales to device manufacturers as well as mobile network operators.
Our forecasts support a share price double today's level, buttressed by the company's potential value to a strategic buyer.
It has been typically busy since our last report (24th November 2010), signing several new contracts, buying the instant messaging business of Neustar for what seems a bargain price, and announcing full year 2011 revenues of $11m, up 85%.
In pure financial terms, the current 26.75p share price is supported by FY12 forecasts, while FY13 forecasts support 45-64p. However, we believe that Synchronica's strategic value is potentially higher, given its 83 mobile network operator customers and an addressable market of over 1bn subscribers.
Synchronica has reported 9 months revenues up 120% at $5.75m, whilst EBITDA losses fell by 25% to $3.23m. Q3 was as usual relatively quiet, with revenues of $0.746m, though the company did sign a major deal with a 15-country African operator during the period. Interestingly, nearly a half of revenues came from device manufacturers, a new and increasingly important distribution channel for Synchronica.
Our FY11 forecasts support a share price of up to 28p, or 67% above current levels, whilst the FY12 forecasts support up to 59p / share. We believe that Synchronica has a strong strategic position given favourable mobile macro trends, the strength of the sales pipeline, the repeat orders that will start to come through from the various contracts signed in the last 24 months and the growing importance in sales to device manufacturers as well as mobile network operators.
Acquisition now closed of Canadian iseemedia, bringing new customers, patents as well as complimentary technology
Strategic importance of Group enhanced; value to an industry buyer not reflected in market cap
Sector multiples also suggest short term fair value up to 28p / share; two year view up to 59p / share
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All share transaction with associated placing; end result will be dual UK and Canadian listing
Earnings adjust downwards in short term, but attractive future means 2.8p fair value / share well above current levels
Including first carrier contract gained though Nokia Siemens Networks
Improved revenue outlook suggests undervaluation if estimates met
FY2009 results showed revenues of £3.8m (+3%), an 81% jump in gross margin to £3.17m and a reduced EBITDA loss of £1.95m. As well flagged previously, revenues undershot market expectations of £5m due to a significant contract with a major multinational mobile operator, that was due to be booked in 2009, being put on hold due to the operator entering M&A discussions.
Given the favourable mobile macro trends, the strength of the company's sales pipeline, the repeat orders that will start to come through at some stage from the 13 contracts signed in FY09, and the apparent strong interest in the MessagePhone, we believe that Synchronica has a strong future. The current share price weaknesses, whilst an understandable reaction to the revenue shortfall, does not, in our view, reflect the strategic value of the company.
Buying mobile Instant Messaging technology and carrier contracts from Colibria: complementary fit with existing mobile e mail business
Cash and shares consideration, with concurrent placing
Target sector rating suggests significant upside for shares - to follow evidence of revenue growth
Steady flow of contracts: 4th African mobile e mail deal in just 3 months
Recent profit taking leaves shares at bottom of our short term valuation range
Revenues up 7x from last year
Balance sheet strengthened by earlier fund raise
Strong sales momentum underpins shares' long term attractions
Management confident of meeting full year expectations
Low cost messaging handset collaboration progressing
Good sales momentum with distribution partners
Strong cash position
A low-cost messaging device and service for emerging markets
Supporting fund raise significantly strengthens the balance sheet
Upside for Synchronica likely to be significant from 2010 onwards
Focus on consumer and prosumer segment, particularly in emerging markets.
Growing momentum in signing customers and distributors.
2009 set to be landmark year as the company begins to demonstrate its long term potential.
