Tremor International Ltd (LON: TRMR) – Well-Positioned to Capitalize on Next-Generation Opportunities.

Tremor International Ltd is an FTSE AIM All-Share Index listed Company founded in 2007 and headquartered in Tel Aviv, Israel. The Company is an international leader in the advertising technology business. TRMR operates in more than 60 countries. It provides digital advertising services, taking maximum advantage of the latest video, native and display technology to reach users for every app, service, and brand. TRMR works with over 450 leading advertisers comprising Disney, OpenTable, Amazon, Twitter, Zynga, Expedia, etc., and more than fifty thousand publishing and supply partners worldwide. The Company’s operations are spread across the US, Canada, Europe, Asia-Pacific, Latin America and India. The Company’s mission is to provide an automated marketplace for publishers and advertisers using advanced data-driven technology.

  Growth Drivers

• Key Ecosystem Trends: The Company has 78% of contribution ex-TAC being generated from the video advertisement format, which is growing at 31%. Also, 75% of programmatic revenue comes from Mobile & CTV, which rose by 34% in FY2020.
• Capitalize on Next-Generation Opportunities: Digital advertisement spending internationally is expected to grow at a CAGR of 11% till 2025. TRMR is currently well-positioned to utilize this opportunity to drive its growth.
• Well progressing integration: TRMR made several acquisitions over the years and continues to evaluate acquisition targets. All the acquisitions are fully integrated with TRMR’s operations, driving record levels of growth.
• Optimizing Advertising Campaigns: TRMR employs several strategies to empower advertisers. It has access to high-quality advertising inventory, self-service solutions for advertisers and optionally managed service, which benefit advertisers through the guidance of TRMR’s team of experts.
• Data-Driven Insights: TRMR provides fully integrated and flexible solutions and real-time data-driven intelligent decision making solutions to its clients. It helps in achieving customer satisfaction and grows TRMR’s client base.
  

(Source: Company Presentation)

Key Risks 

• Evolution of the media industry: There is a continuous disruption in the media industry as consumers expect different types of choice, convenience and value in a customized manner. Hence, TRMR also needs to evolve continuously.
• Intensifying Competition: There is intensifying competition in the media industry for viewers and subscribers, which could lead to a margin squeeze for TRMR.
• Disruption in many regions: The Company operates in a global economy, and hence, there are disruption challenges in many regions due to Covid-19.
• Disruptive Technologies: Any existing or new competitor could introduce disruptive technologies. These new technologies could take away market share from TRMR and affect its margins.
• Change in Management: There were changes in management in FY2020 for TRMR. This could affect its strategy in the short term.
  

Now, we will analyze some key fundamental and shareholders statistics of Tremor International Ltd.

Recent Development 

Pricing of IPO: On 18 June 2021, TRMR announced the pricing of its IPO to raise USD 128.60 million. It is offering 6,768,953 American Depositary Shares at a public offering price of USD 19.00 per ADS.

Q1 FY2021 Trading Update (released on 25 May 2021) 

• Driven by the successful integration of all of its acquisitions, TRMR saw its revenue in Q1 FY2021 rose dramatically by 96% YoY.
• Due to the revenue growth in Connected TV, the self-serve platform and private marketplaces, Programmatic revenue surged by 105% in Q1 FY2021.
• It resulted in the extraordinary rise in adjusted EBITDA, which was up 4,935% to USD 27.5 million in Q1 FY2021.
• It helped in achieving a zero debt position in Q1 FY2021, with cash on 30 April 2021 being at USD 130 million.

Financial and Operational Highlights (for the year ended 31 December 2020 as of 10 March 2021)

(Source: LSE Website)

• Driven by a significant resurgence in advertising spend from TRMR’s clients in H2 FY2020, revenue in FY2020 recovered partially despite the impact of the pandemic in H1 FY2020. However, the revenue in FY2020 declined YoY by 35%.
• Due to the new practice of recognizing revenue on a net basis for the Programmatic activity, the cost of revenues was down 68% YoY in FY2020.
• As a result of the expenses related to amortization of the brand, domain name and customer relations, selling and marketing expenses rose by 42% YoY in FY2020.
• Due to lower revenue and higher selling and marketing expenses, loss from operations in FY2020 reached USD 6 million from a profit from operations of USD 3.9 million in FY2019.
• On a positive note, helped partially by the net cash provided by the acquisition of Unruly, net cash rose 26% YoY in FY2020.
  

Financial Ratios (H2 FY20)

Share Price Performance Analysis

 (Research done by Kalkine Group)

On 22 June 2021, at 7:05 AM GMT, TRMR’s shares were trading at GBX 656.00, down by 0.61% against the previous day closing price. Stock 52-week High and Low were GBX 870.65 and GBX 119.50, respectively.

On a daily chart, TRMR's price is trading above 20-day EMA of about GBX 530.00, indicating the possibility of an upward movement. The momentum indicator RSI (14-period) is trading at ~31.23 level and moving towards the oversold zone. The MACD line is trading above the centreline and is forming a positive crossover with the signal line.

In the last six months, TRMR’s stock price has delivered a solid positive return of ~92.98%. It has outperformed the FTSE All-Share Media index with a return of around 12.44% and the FTSE AIM All-Share index with a return of about 12.10%.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Peers used in the valuation methodology (Price/NTM Earnings)

Business Outlook Scenario

TRMR has a record performance in Q1 FY2021 and is expected to do well in the rest of FY2021, helped by synergies from its acquisitions, resurgent customer demands and recovery in the markets. There is an ongoing resurgence in the global digital advertising industry, which TRMR could capitalize on to drive its growth. The Company utilizes the key ecosystem trends, capitalizes on next-generation opportunities, has a well-progressing integration of operations, helps its clients to optimize advertising campaigns and uses data-driven insights to provide intelligent solutions to its clients. It is going for an IPO to raise significant liquidity. TRMR has zero leverage in Q1 FY2021, indicating financial flexibility to raise further debt, if required, at a cheaper cost. It will help TRMR to significantly invest in its new technologies, its end-to-end technology platform, reaching out to new customers and customer value proposition. The management also has enough confidence in TRMR’s medium to long-term prospects.

The board anticipates that the record performance achieved so far in FY2021 could be sustained. On the technical chart, the next important support level is at GBX 570.00.

Based on the solid performance in Q1 FY2021, full integration of all its acquisitions, decent growth prospects, better profitability, liquidity and leverage position of the Company than the industry, and support from valuation as done using the above method, we have given a “Speculative Buy” recommendation on Tremor International Ltd at the current market price of GBX 656.00 (as on 22 June 2021 at 7.05 AM GMT), with a lower double-digit upside potential based on 29.01x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.). 

 

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*The reference data in this report has been partly sourced from REFINITIV

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