Tremor International Ltd (LON: TRMR)

Tremor International Ltd. is an FTSE AIM 100 index listed Company focused on digital advertising, including video, mobile, native, display technology, and connected TV. The Company was formerly known as Taptica International Ltd.

Investment Rationale – Speculative Buy at GBX 510.00

• Recent Partnerships: On 19 April 2022, Tremor announced the expansion of TV Intelligence solution in partnership with Fyllo (provider of data-driven marketing and regulatory solutions). Previously, on 8 April 2022, Tremor also announced an agreement with Comscore to deliver expanded programmatic CTV audience engagement. Besides, it had added 42 new US supply partners during Q4 FY21 across growth verticals in sports, entertainment, and lifestyle.
• Profitability: On the profitability front, the Company has witnessed a favourable turnaround from reporting an operating loss during FY20 to delivering an operating profit for FY21. Furthermore, the total comprehensive profit came out to be around USD 70.6 million during FY21.
• Net Retention Rate: The Company’s customer net retention rates reached 150.3% during FY21.
• Share Buyback Programme: The Company had announced its intention to return excess cash of USD 75 million through the implementation of a share buyback programme that commenced on 01 March 2022 and will continue until 01 September 2022.
• Technical Indicator: From a technical standpoint, the current stock price is hovering around the lower Bollinger Band, while the 14-day RSI (~39.25) is also in the oversold position.
• Undervalued Multiples: On a forward 12-month basis, key valuation multiples (EV/Sales, EV/EBITDA, and Price/Earnings) are quite lower than the median of the Consumer Cyclicals sector.

Key Risks

• Emerging Risk: British inflation hit a 30-year high of 7% in March 2022, which may cause a further interest rate hike. The onset of inflation and hawkish central bank policy globally can impact the Company’s investment strategies.
• Gloomy Outlook: The World Bank has reduced its global growth forecast for 2022 from 4.1% to 3.2%. Moreover, the lockdown in China can worsen the global economic outlook.

Financial Highlights (for the year ended 31 December 2021, as of 24 February 2022)

(Source: Company Filings)

• Top-Line Business: The top-line revenue grew by around 61% during FY21 and increased by around 26% during Q4 FY21.
• Strong Fundamentals: TRMR reported strong financial performance in FY21 with robust margin profit and balance sheet. It has also bolstered its end-to-end platform and CTV capabilities through strategic deals in Q4 FY21, to deliver material value for all stakeholders.

Share Price Chart

 (Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative)

*Peers: Mission Group PLC, NAHL Group PLC, and S4 Capital PLC.

*All selected peers are LSE-listed Companies from the Consumer Discretionary sector.

*1 USD = 0.78 GBP.

 Conclusion

In Q1 FY22, TRMR expects to deliver at least US$33 million and US$73 million of adjusted EBITDA and contribution ex-TAC, respectively.

Based on the decent fundamentals, transformation progress, and favorable valuation conducted above, we have given a “Speculative Buy” recommendation on Tremor International Ltd at the current market price of GBX 510.00 (as of 25 April 2022, at 8:05 AM GMT+1), with a lower-double digit upside potential based on 10.78x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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