Tremor International Ltd

Tremor International Ltd (LON: TRMR) is an FTSE AIM 100 listed Company that provides Video and Connected TV advertising offerings.

Investment Rationale – SPECULATIVE BUY at GBX 531.65

• Growth Drivers: Tremor bolstered its end-to-end CTV capabilities for customers, and recently announced a partnership with VIDAA, to expand its US and international footprint. Moreover, it looks forward to evaluating additional strategic acquisition opportunities, making further investment in R&D, and increasing market share.
• Guidance: It expects FY21 organic Contribution ex-TAC and Adjusted EBITDA growth of approximately 62% and 150%, respectively.
• Statement re Press Speculation: On 23 November 2021, TRMR clarified that it is routinely engaged with third parties as a part of its business. The underlying performance of the Company remained strong, and the Board is confident about its future performance.
• Technical Indicator: From a technical standpoint, TRMR’s stock price is trading above the 20-day EMA (GBX 521.48), reflecting a bullish price momentum.

Key Risks:

• Inflation Concern: Due to the inflationary pressure, the Bank of England increased the Bank Rate by 25 basis points to 0.50%. It can keep the equity market under pressure amid the rising US Dollar index.
• Sluggish UK Macroeconomic Indicators: The UK Composite PMI fell marginally to 53.4 in January 2022 from 53.6 in December 2021, while the UK consumer price inflation breached a nearly 30-year high of 5.4% in the 12 months to December 2021.

Financial Update (for the third quarter ended 30 September 2021, as of 11 November 2021)

 (Source: Company Website)

• Financial Performance: TRMR recorded a strong financial performance, driven by its performance strengthened by significant programmatic activity.
• Operational Growth: The adjusted EBITDA jumped by 116% year-on-year in Q3 FY21 to US$42.3 million.
• Strategic Focus: The CTV remained a key strategic focus for the Company as the industry continued to shift towards programmatic buying.

One Year Share Price Chart

 (Data Source: REFINITIV, analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Conclusion

In the FY21 so far, Tremor demonstrated a robust financial performance as it continued to witnessed growth in CTV and Video spending. It has also expanded the partnership with Roster and achieved significant business wins to sustain the strong trading momentum. In terms of guidance, Tremor expects to deliver the adjusted EBITDA of at least US$149 million in FY21. The stock made a 52-week High and Low of GBX 870.65 and GBX 451.00, respectively.

Based on the significant revenue growth, enhanced CTV capabilities, clear financial guidance, and favourable valuation conducted above, we have given a “SPECULATIVE BUY” recommendation on Tremor International Ltd at the current market price of GBX 531.65 (as of 7 February 2022, at 10:08 AM GMT), with lower double-digit upside potential based on 11.73x Price/NTM Earnings (approx.) on FY21E Earnings Per Share (approx.).

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.

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 unfavourable movement in the stock prices.

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