Business Overview
Tremor International Ltd. (LON: TRMR) is an AIM-listed international leader in the advertising technology business. The group has operations in over 60 countries. It offers digital advertising services, taking maximum advantage of the latest video, native, and display technology to reach users for every app, service, and brand. The company works with over 450 leading advertisers comprising Disney, OpenTable, Zynga, Amazon, Twitter, and Expedia and more than 50 thousand publishing and supply partners worldwide. The company’s business is spread across the United States and Canada, Europe, Latin America, Asia-Pacific, and India, with headquarters located in Israel. Business fundamentals are quite robust with a proven track record of growth, with revenue (2018: $276.9 million), EBITDA (2018: $44.1 million), total dividend (2018: $6.4 million), and net cash (2018: $54.4 million).

Key Statistics



Top Shareholders

 

Management

Ofer Druker is the Chief Executive Officer (CEO) of the group. Yaniv Carmi holds the responsibilities of Chief Financial Officer (CFO).

Business Divisions


(Source: Company Website)

The group operates in three business divisions: Tremor Video, RhythmOne, and Taptica. Tremor Video division is one of the most innovative and largest video advertising division with Connected TV and second-screen device services. The company supports advertisers to provide the most appealing brand stories in a complicated video landscape by empowering them with creative video intelligence and advanced technology. RhythmOne division drives the real business outcomes in multiscreen advertising. Taptica division is an end-to-end mobile advertising platform.

In the second quarter of 2019, the RhythmOne media division has attained a number of top rankings, as issued by omni-channel fraud intelligence group Pixalate. RhythmOne division was positioned first among its peers in each of Pixalate's Global, Mobile and Video Trust Indexes. On 9^th October 2019, the company announced that tremor video division had launched a number of self-service improvements to the group's current DSP (Demand-side Platform) within its programmatic video division.

Financial Highlights (for the six months ended 30 June 2019, US$ thousands)


(Source: Interim Report, Company Website)

In the first half of 2019, the company’s revenue was reported at $144.9 million,a slight increase from the corresponding period of the last year. Three months’ synergetic contribution from the RhythmOne division helped in expanding top line. The gross profit and gross margin remained the same in the current period.

The revenue split by business divisions: revenue from the Branding business (Tremor Video and Q2 only for RhythmOne’s branding activity) of $102.6 million (71%) and from the consolidated Performance business in H1 FY19 (only Q2 for RhythmOne) of $42.3 million (29%) as compared with the corresponding period of the last year.

The adjusted EBITDA decreased marginally from $21.6 million in H1 FY18 to $21.4 million in H1 FY19. The company’s reported loss per share stood at 0.05 cents in the first half of 2019 versus the earnings per share of 0.16 cents in the first half of 2018. While diluted earnings per share for the first half of 2019 decreased to 0.12 cents against the same period in 2018. For the six months ended 30 June 2019, the net cash inflow from operating activities stood at $19.7 million against the $21.5 million in H1 FY18. On 30^th June 2019, the net cash increased to $66.5 million as compared with the previous year period (31 December 2018: $54.5 million). This net cash was reported after the completion of share buybacks totalling $18.9 million in order to generate value for shareholders in the first six months of the year. The company also repaid all RhythmOne and Tremor bank loans for a total consideration of $18 million.

Operational Highlights

In April 2019, the company completed the transformational merger with RhythmOne. The group completed the renaming of the group to Tremor International Limited in June 2019 to better reflect the company’s continuing emphasis on video and to leverage Tremor’s brand equity.

Financial Ratios

 

The reported EBITDA margin in the financial year 2018 stood at 13.6 per cent against 15.8 per cent reported last year for the same period. The reported operating margin in the Financial Year 2018 increased by 1.2 per cent to 9.6 per cent from 8.4 per cent reported last year for the same period. The reported Pre-tax margin in FY2018 was up by 1.6 per cent to 9.8 per cent against 8.2 per cent reported last year for the same period. Net margin reported was 8 per cent for the financial year 2018, reflecting an increase of 1.5 per cent when compared with the last year data for the same period. The company’s Net margin for the period was slightly below the industry Median data of 8.6 per cent for the period. Return on equity for the Financial year 2018 stood at 23.4 per cent, which was higher than the industry median of 13.9 per cent. On leverage front, the debt-equity ratio of the Tremor International Ltd was 0.10x, which was lower as compared to the industry median of 0.18x, reflecting that the company is less leveraged as compared to its peers. The asset-equity of the company’s stood at 1.59x, which was lower as compared to the industry median of 2.11x.

Share Price Performance


Daily Chart as at November-26-19, before the market close (Source: Thomson Reuters)

On November 26, 2019, at the time of writing (before the market close, at 11:44 AM GMT), Tremor International Ltd shares were trading at GBX 152.51, down by 0.97 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 315.38/GBX 73.20. At the time of writing, the share was trading 18.07 per cent lower than the 52w High and 16.94 per cent higher than the 52w low. Stock’s average traded volume for 5 days was 153,561.20; 30 days – 380,050.93 and 90 days – 675,897.02. The average traded volume for 5 days was down by 59.59 per cent as compared to 30 days average traded volume. The company’s stock beta was 1.86, reflecting higher volatility as equated to the benchmark index. The outstanding market capitalisation was around £188.04 million. The company’s stock has given investors 4.41 per cent of a positive return in the last month.

Valuation Methodology
Method 1: EV/Sales Approach (NTM)



To compare Tremor International Ltd with its peers, EV/Sales multiple has been used. The peers are System1 Group PLC (NTM EV/Sales was 0.76), Mission Group PLC (NTM EV/Sales was 0.93), Ebiquity PLC (NTM EV/Sales was 0.69), and Be Heard Group PLC (NTM EV/Sales was 0.50). The Average of EV/Sales (NTM) of the company’s peers was 0.72x (approx.)

Method 2: Price to Earnings Approach (NTM) 
 


To compare Tremor International Ltd with its peers, Price to Earnings multiple has been used. The peers are System1 Group PLC (NTM Price to Earnings was 6.5), Spaceandpeople PLC (NTM Price to Earnings was 5.20), NAHL Group PLC (NTM Price to Earnings was 7) and Be Heard Group PLC (NTM Price to Earnings was 2.11). The Average of Price to Earnings (NTM) of the company’s peers was 5.2x (approx.)

Growth Prospects and Risk Assessment
In spite of the continuing fragility in the business performance, the group’s board mitigated the risks by the initial contributions from RhythmOne division. In the second half of 2019, the company will deliver favourable results. In the medium to long-term period, the company is confident of generating a decent revenue growth with the focus on reducing costs.

In terms of seller trust, the RhythmOne division is leading the market. The improvement of the self-service capabilities of Tremor Video's DSP is a substantial strategic development to the offering, as the company believe that it will deliver an important progress engine in the group's future development. The company is working in an ever-evolving market in which customisation and audience targeting capabilities, advertisers demand will increase, along with the current AI (artificial intelligence) and machine learning enhancements to the DSP. The company is well positioned to capitalise on this ongoing progress.

The company operates in multiple geographies, and its profits can be impacted negatively due to the foreign exchange rate fluctuations. To meet the new regulations, the group needs to implement new processes, failing to do so would increase the compliance risk. The company has been focussed on its services and customer support, which has resulted in a higher level of customer satisfaction. The company has a strong financial discipline which helped the company to have a robust and effective balance sheet with good infrastructure to support rapid growth.

Conclusion
Although, the profitability performance declined marginally, the top-line performance has improved for the period.The company needs to manage its operating and non-operating cost-effectively. The company based on its strong order book, expects strong operational and financial performance in the coming years with support coming from the litigation funding market.

Tremor International Ltd. witnessed a CAGR growth of ~44.73% in revenue over the period of FY14-FY18 while EBITDA recorded a stellar CAGR growth of ~43.16% during the same period.
Based on the decent  fundamental prospects and support from valuation done using the above two methods, we have given a “Speculative Buy” recommendation at the current price of GBX 152.51 (as on 26th November 2019, before the market close) with lower-double digit upside potential based on 0.72x NTM EV/Sales (approx.) on FY19E sales (approx.) and 5.20x NTM Price/Earnings (approx.) on FY19E earnings per share (approx.).
 
*All forecasted figures and Peers information has been taken from Thomson Reuters. Currency exchange rate taken for 1 USD = 0.77743 GBP.

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