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UPDATE - InternetQ hitting the right notes

With cash flow turning positive, InternetQ may soon build up the firepower to make more bolt-on acquisitions to broaden its technology platforms and geographic footprint.

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Smartphone-mania continues to drive top line and earnings growth at mobile marketing firm InternetQ (LON:INTQ).

The trend looks set to continue, as well, with the group revealing that there were 32mln downloads of its new smart app advertising platform, Minimob, in the first 90 days after release.

Revenue in the first half of the year rose 31% to €43.0mln from €32.8mln in the corresponding period of 2012. Underlying earnings (EBITDA) surged 25% to €5.2mln from €4.1mln the year before, while profit before tax climbed 90% to €3.60mln from €1.89mln.

Cash and cash equivalents at the end of June stood at €8.5mln, up from €5.6mln a year earlier. Free cash flow in the reporting period was positive, at around €100,000, whereas in the first half of 2012 it was negative, at €2.6mln.

“This demonstrates efficiency in working capital management and the maturity of our operations in general,” chief executive officer, Panagiotis Dimitropoulos, told Proactive Investors.

Free cash flow should end the year on a positive note, with free cash flow from operations at higher levels, he added.

Dimitropoulos said the company remains on the look-out for further suitable acquisitions, such as the recent purchase of Atlas Interactive. Atlas’s strong market position in Germany has been invaluable in opening up channels for the company’s Akazoo music streaming service and also its Minimob mobile marketing platform.

“The integration [of Atlas] is expected to be done by the end of the year,” the InternetQ boss revealed.

“Our focus on fast growing markets and the associated leap in smartphone adoption provide continued momentum to InternetQ. Therefore, our trading prospects remain strong and I fully expect our organic growth to continue," Dimitropoulos said in a stock exchange statement.

Broker Canaccord Genuity has initiated coverage on InternetQ with a ‘buy’ rating, a 480p price target and a splendid pun in a research note entitled “upwardly mobile”.

The broker notes InternetQ has built a strong position in Eastern Europe and South East Asia across all of its products.

“The rapid increase in smartphone penetration should accelerate growth opportunities in both mobile marketing and music,” says Canaccord’s Simon Davies.

Organic growth is likely to be augmented by further bolt-on acquisitions, in Davies’s view, as the company seeks to broaden its technology platforms and geographic footprint, and generate high returns on investment.

Davies also highlights the potential of InternetQ’s music streaming service, Akazoo, which is a viable competitor to the likes of Spotify and Deezer.

“Akazoo has the flexibility to operate as a B2C [business-to-consumer] brand, but also a B2B [business-to-business] resource for the leading mobile phone networks,” Davies reckons.

“Cash flow has been a weak spot, but this has been a factor of working capital expansion to fuel growth. We expect improved operating cash flow conversion through FY13, leaving InternetQ with a strong balance sheet to pursue further deals, after the success of iPop in Singapore,” Davies predicts.

The shares have already had a great run this year, rising 86% by Davies’s calculations, hoisting it to a multiple of 15.4 times projected earnings per share for the current year. Davies’s view is that the multiple is exaggerated by the €12mln of cash sitting on the balance sheet at the end of 2012.

The broker reckons that Akazoo alone accounts for 90% of the enterprise value (EV) of the group.

Based on Canaccord’s earnings estimates for 2014 the target price of 480p represents an EV/EBITDA ratio of 10.0.

Quick facts: Internetq Plc

Price: - -

AIM:INTQ
Market: AIM
Market Cap: -
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