Crowd Mobile Ltd. Track Deal Drives Valuation Upgrade BUY. Valuation $0.63

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1 Crowd Mobile Ltd Price: $0.19 Track Deal Drives Valuation Upgrade Overview: Crowd Mobile Limited ( Crowd Mobile, the Company ) is an Australian technology Company focused on mobile software and services. Its principal assets include product distribution capability via 60 mobile phone carriers in 25 countries; and proprietary content production capabilities focused on consumer advice. Founded in 2005, the Company listed on the ASX via a reverse merger with Q Limited. Crowd Mobile has entered into a Heads of Agreement to acquire Netherlands based Track Holdings BV ( Track ). Founded in 2008, Track is focused on the distribution of mobile services via 140 carriers in 38 countries. CONCEPT COMMERCIAL TRIALS SALES Catalysts: The Track acquisition represents a transformational deal for Crowd Mobile, adding to the Company a strong earnings growth history and immediate scale. Distribution capability in terms of quantity of mobile carriers and geographic presence is forecast to rise 170 per cent, and 100 per cent respectively. The transaction also delivers a step change in Crowd Mobile s financial performance. Track is on course to generate its fifth consecutive year of increased revenue and earnings. Relative to our pre existing forecasts, pro forma FY16f revenue is scheduled to double, whilst EBITDA is scheduled to be over 4x higher. Hurdles: Whilst the operations of Track and Crowd Mobile are relatively similar, the scale of this transaction creates integration and funding risks. There is no guarantee forecast synergies will materialise, or that Crowd Mobile can generate returns sufficient to justify and service the required expansion of its capital base. With entry barriers to the industry primarily limited to complexities surrounding the procurement of carrier relationships, Crowd Mobile may face increasing competition. Investment View: Crowd Mobile provides profitable exposure to the market for mobile software and services. We remain attracted to its established income profile and view the Track transaction to be highly complimentary and value accretive. Incorporating Track and associated funding requirements, our valuation has been upgraded by over 50 per cent to $0.63/share. Representing a 200 per cent premium to recent trade, we maintain our positive view and are upgrading our recommendation to buy. TICKERS INDUSTRY BUY CORPORATE SUMMARY SHARE PRICE CM8.ASX CM3.ETR Technology SHARES ON ISSUE 85.2m OTHER SECURITIES MARKET CAP CASH ISSUED CAPITAL REVENUE EBITDA 9m Performance Shares 1m Options 25c, 2018 FINANCIAL OVERVIEW FY16F $16.2m $1.5m $6.1m $46.6m $13.9m GROWTH 10% + PE 9x DIVIDEND YIELD - CHAIRMAN CEO & EXEC DIRECTOR NON EXEC DIRECTOR Valuation $0.63 BOARD OF DIRECTORS SHAREHOLDERS Theo Hnarakis Domenic Carosa Hans de Back D.S.A.H. HOLDINGS PTY LTD 23.6% MANAGEMENT 22.1% TOP % Method Assumption Valuation Per Share Comparables 3x Sales $113m $0.74 CFME 4x FY18f EBITDA $77m $0.51 Average $95m $ Jan-2015 Apr

2 A$ Millions TARGET OVERVIEW TRACK HOLDINGS BV Track is a Netherlands technology Company focused on mobile software and services. Its principal assets include product distribution capability via 140 carriers in 38 countries. Founded in 2008, Track is on course to generate its fifth consecutive year of increased revenue and earnings. $30 $25 $20 $15 $10 $5 $- Track Financial Performance f Revenue EBITDA Figure 1: Track is projected to record its fifth consecutive year of increasing revenue and EBITDA in Note that periods are calendar years result is derived from unaudited management accounts and 2015 represents a forecast result. Source: Crowd Mobile. Five years of profitable growth We view Crowd Mobile s acquisition of track as immediately value accretive and strategically sound. The transaction has an enormous impact on Crowd Mobile s distribution capabilities, expanding its quantity of telco distribution partners by 170 per cent, doubling its national market presence, and increasing language compatibility by 60 per cent. Whereas Crowd s existing operations have been primarily ANZ and EU focused, Track provides immediate entry into new Asian and South American territories. Rationale Crowd Track Combined Countries >50 ( 100%) Mobile Operators >160 ( 170%) Languages >40 ( 60%) Core Products ( 300%) The transaction is forecast to double Crowd Mobile s earning margin and priced below three times earnings, represents an attractive purchase multiple. Immediate synergies available to Crowd which underpin our pro forma earnings projections relate to the Company s ability to distribute its proprietary content through Track s distribution channels. Roll out of Track s payment processing infrastructure across Crowd Mobile s existing operations also presents a growth opportunity. 2

3 Valuation $/Sh VALUATION Crowd Mobile s investment appeal rests in the current and future revenue streams generated by its mobile services portfolio. We have updated our forecasts to incorporate the Track acquisition. Relative to our pre existing forecasts, pro forma FY16f revenue is 2x higher, whilst EBITDA is scheduled to be over 4x higher. Pro Forma Forecast FY $m Revenue $37.5 $46.6 $58.0 $65.3 EBITDA $13.9 $16.9 $19.1 NPAT $3.7 $5.9 $7.5 EPS $0.02 $0.04 $0.05 Track deal lifts valuation by 50 per cent EV/EBITDA PE Consistent with our initial February 3 rd report, we have considered the Company s potential worth using a Comparables approach and Capitalisation of Future Maintainable Earnings ( CFME ) methodologies. Our appraisal assumes the Track acquisition is funded utilising a combination of corporate debt and convertible notes, resulting in a fully diluted share base of 150.7million. The funding mechanisms are assumed to be non amortising and the average cost of funds is assumed to be per cent, resulting in interest coverage rising from 4.1x in FY16 to 5.7x by FY18. The convertible notes are assumed to exchange into ordinary shares at $0.40/share Comparables CFME FY15 pf Revenue Metric FY18f EBITDA 3 Multiple 4 $112.8 Valuation $m $76.6 $15.0 Debt $m $15.0 $97.8 Equity Value $m $ Shares m $0.75 Value per share $ Sensitivity Analysis Con Note Only -20% -10% 0% 10% 20% Deviation from Assumption Note Conversion Price Equity Funding FY18 EBITDA Base Case Equity Only Our Comparables approach arrives at an equity valuation of $96.5million, or $0.74/share. Our CFME method arrives at an equity valuation of $61.7million, or $0.51/share Applying equal weightings both methods delivers an aggregate valuation of $79.1million or $0.62/share. To consider the impact on differences in the funding mix, we have run multiple scenarios as part of a sensitivity analysis. Our valuation is most sensitive to the amount of ordinary equity funding. Every 10 per cent increase in equity funding reduces our valuation by 6 per cent. Figure 2: Impact of different funding and earning scenario s on our valuation. Note that the valuation is most sensitive to the proportion of ordinary equity issued to fund the acquisition. We estimate an all equity funded $0.20/share results in a valuation of $6/share. Should the transaction be funded entirely be convertible note exchanging at $0.40/share, we estimate the valuation would be $0.50/share. Our base case scenario is for a 50/50 corporate debt and convertible note package (excluding vendor shares), resulting in a valuation of $0.63share. 3

4 THE BULLS AND THE BEARS THE BULLS SAY Crowd Mobile s is accelerating its growth strategy via the acquisition of Track a highly complimentary business on course to deliver its fifth consecutive year of earnings growth. The Track deal significantly enhances Crowd Mobile s distribution capability expanding quantity of mobile carrier relationships by 170 per cent and national markets by 100 per cent. Delivery of Crowd s proprietary content via Track s distribution channels, and increased utilisation of Track s sophisticated payments systems are expected to realise significant synergies Our valuation has increased 50 per cent due to the Track acquisition and represents a significant premium to recent trade THE BEARS SAY Track is a large acquisition relative to the size of Crowd Mobile s existing operations and is accompanied by integration and funding risks As the combined group has a significant global presence, further geographical expansion opportunities may be limited, increasing the importance of market penetration for further growth. There is no guarantee synergies targeted from the Track acquisition will materialise, which could jeopardise Crowd Mobile s ability to generate returns sufficient to justify and service the required expansion of its capital base. Valuation is contingent on Crowd Mobile delivering a sustained period of earnings growth and successfully financing the Track acquisition utilising debt and hybrid securities. 4

5 Share Price $ GLOSSARY Buy Spec Buy Hold Sell Increasing value of established business operations is likely to yield share price appreciation Increasing value of a new or developing business operation is likely to yield share price appreciation. There exists an even balance of risks. There is elevated risk of share price depreciation. CROWD MOBILE LTD (CM8.ASX) FEB-15 Initiating Coverage - Speculative Buy 0.2 Stop Concept Our recommended, pre determined sell price, to be executed if the share price fails to appreciate An early stage of technological development characterised by design, controlled tests and prototyping 0.1 Jan-2015 ANALYST Apr-2015 Commercial Trials Sales An intermediate stage of technological development characterised by testing with end users and prospective customers An advanced stage of technological development where regulatory approvals have been secured and a commercial rollout has commenced TIM MORRIS timm@ www. ABOUT US Wise owl is a global supplier of intelligence, strategic solutions, and expansion capital for emerging companies and investors. Established in 2001, wise owl drives efficient capital allocation towards developing assets. Media Partners: DISCLAIMER CONTACT Domain House, Level Macquarie Street Sydney, NSW 2000 Phone Australia International Intelligence Centre www This report was produced by Pty Ltd (ACN ), which is an Australian financial services licensee (Licence no ). Wise-owl may have an investment banking or other commercial relationship with the issuer of any security or financial product in which you have an interest by acting in various roles including as underwriter, dealer, holder of principal positions, banker, broker, lender, adviser or researcher. Wise-owl may receive fees, commissions or other remuneration from such activities. Wiseowl.com Pty Ltd has made every effort to ensure that the information and material contained in this report is accurate and correct and has been obtained from reliable sources. However, no representation is made about the accuracy or completeness of the information and material and it should not be relied upon as a substitute for the exercise of independent judgment. Except to the extent required by law, Pty Ltd does not accept any liability, including negligence, for any loss or damage arising from the use of, or reliance on, the material contained in this report. This report is for information purposes only and is not intended as an offer or solicitation with respect to the sale or purchase of any securities. The securities recommended by carry no guarantee with respect to return of capital or the market value of those securities. There are general risks associated with any investment in securities. Investors should be aware that these risks might result in loss of income and capital invested. Neither wiseowl.com nor any of its associates guarantees the repayment of capital. WARNING: This report is intended to provide general financial product advice only. It has been prepared without having regard ed to or taking into account any particular investor s objectives, financial situation and/or needs. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. Where applicable, investors should obtain a copy of and consider the product disclosure statement for that product (if any) before making any decision. DISCLOSURE: Wise-owl.com Pty Ltd and/or its directors, associates, employees or representatives may not effect a transaction upon its or their own account in the investments referred to in this report or any related investment until the expiry of 24 hours after the report has been published. Additionally, Pty Ltd may have, within the previous twelve months, provided advice or financial services to the companies mentioned in this report. P4-23 Marina Terrace Dubai Marina Dubai, U.A.E 5