🔴 A Small Cap Tech Stock Positioned for Growth (w/Jeff Meyers)

Welcome to real visions trade ideas today. We’re sitting down with Jeff Myers of cobia Capital. It is great to have you here
Thank you
So this is your first time on real visions trade ideas
And we actually found out about you through some zero which is a by side
Idea generation platform and you were ranked number one on that site for the ideas that you had posted there
Could you give us a little bit of your background what you do?
And and your work with some 0s. I start my own fund in Oh 8 or lay those seven. I guess I got seed
from my former employer at Sigler calorie
ten million dollar seed and
Launched January o8 obviously great time to launch a hedge fund home now LaValle told you that year
But through the end of being a good time to start because at the end of the year there were you know
The bargains were ridiculous. I mean, you know, there’s things trading for cash below cash
So we just scooped up, you know lots of companies at the end of the year beginning about nine and then over nine
you know you had a big rally and
You know, we took advantage of that had a great year
And since then I’ve been you know managing the fund and you’re mostly looking at stocks that other
Analysts aren’t looking at so you don’t have huge mutual funds or large funds that are investing in these stocks exactly
You know, the small cap area is because of size and liquidity, you know, the big mutual funds can invest there
And we also have something a little special I guess because we are
You know as as I serve, you know, maybe indicated earlier. We’re still a value oriented strategy
So a lot of guys in technology or not value guys their growth guys momentum guys
Etc. So we’re looking at different names and they’re looking at or we’re looking names earlier and they’re looking at them
So we get a lot of interesting opportunities
You know where we got very few other
Competitors I guess looking at them. So how do you come up with your ideas?
So there’s a lot of screening involved because we’re value oriented
You would probably get 70% of our names through screening and we have about 65 different screens that we use
To parse the universe and try to figure out you know
What’s inexpensive and then we dig in to those names? That’s the main way. All right
So what trade are you looking at today? So we’re looking at a company called Excel media tickers xlm
demonstrated in London probably cheapest stock
you’re gonna see in a long long long time stock trades at three times EBIT that so basically
You know enterprise value to eBay does about you know about three times
So the way they think about that is if you bought the whole company at that valuation
you know you get paid back in three years, so
It’s very inexpensive them and you know, even the multiples usually range, you know, six to fifteen or so
So the reason is that you know, they’ve had tough time in the last couple of years
The I guess let me explain the business so it’s a it’s called an affiliate marketer
So what they do is they get customers
Or clients, I guess from the internet and they pass them on to your site. Mmm-hmm
So we think it’s a very transferable skill they started in
the online gambling
So they get customers for you know Union bed eight
Betfair guys like that do they own their own websites or do they own part of the gambling websites? How does that work?
So they have two ways really of getting, you know getting these gang customers
One is to have their own websites. So they have about 2,600 different websites. They developed over time and
Some of you will come plus as some of you interested in sports betting in the UK
So they go to one of their sports betting sites
There’s a lot of information about you know, different teams and ODS and things like that. But then in addition there are
You know little
Say ads on the side for you $10 discount at Betfair then they’ll discount that
Yeah, you bet. So if somebody clicks on that and they go to
Let’s say the unitbatch site any
Revenue that they generate on you Tibet
exhaling gets half
So it’s a good you know, it’s a good arrangement
It’s sort of recurring revenue over time as long as the customer stays on on you bet. You know people I think
perceive it as somewhat of a
Shady business. It’s gambling. It’s what they do is they trust in regulated markets
Mmm-hmm, you know so like the UK, for example, there’s like a tax
You know on online betting so the government’s getting money, you know, they’re incentivized not to shut things down
So they’re not completely
Operating in a gray area, correct. Therefore I say probably
70% of the markets are already regulated and the other 30% are moving towards
Regulation. So now there are like for example in the UK over the last year the
Regulators have cracked down a little bit on having, you know, kids kind of a to be under 18 get into gambling
and so they’ve you know crack down on the types of advertising and there can be
And that’s affected those and that’s a fact they actually land their
You know big customers have got a little more conservative, you know until the regulation pans out and they can see you know
Get a better view of what?
You know, the regulation is gonna be we feel that sort of behind at this point, you know
So that was really over the last two years and there is some more like Sweden is regulating now
So the tax there is gonna is gonna hurt some of the guys for a little while
So that’s one way they get their business is the websites my 600 websites, you know people go to them
they you know, they eventually go to their
You know the customers and that’s how you generate revenue. The other way was through media campaigns
So they would have advertisements on other people’s websites
So that was pretty fast growing revenue stream for them, but not very profitable one
So what’s happened over the last few years they’ve really pulled back the media side of the business
So that’s hurt revenue, you know like revenues down 18 percent last year
on that but
EBIT, ah was only down 2% because most of the episodes being generated by the other
You know by the publishing business and publishers has grown, you know, mid-single digits the last two years. That’s still growing
so we think that
there’s a lot of opportunity ahead of them now there is
You know us
Basically rate said, you know at least on a federal level
Sports betting is okay. Mm-hmm
so now each state has to come in and
you know and basically
You allow sports betting. Mm-hmm. And so that process is you know, sort of ongoing now
And over time it’s become a bigger and bigger market for them
And there’s some I don’t even remember the number it’s you know, some you know, 20 billion dollar, you know
amount of illegal sports betting in the US so as that gets regulated, you know, and
You know the those big customers the casinos want help gathering clients
And they’ll bringing guys like excel them so that could be a big opportunity for them going toward
so then
Is this the biggest?
Aspect of their business you have the the sports betting you have the gambling aspect. You have the publishing aspect
Are there other areas that they’re involved in? Yeah, so they basically diversified a lot since they went public
Mm-hmm, what they were public they were really a you know, Swedish gambling
Now they’ve diversified into other geographies, you know, at least certainly within Europe and now looking at the US and Latin America as well
And they’ve also diversified their base of business. So now they’re 30% consumer finance. So basically
it’s in the US and Canada and
There’s sites where you know, they talk about, you know, you’re going to the site and it tells you about different credit cards
Which phones have the best points which ones are good for yo, younger
kind of, you know users and then they have links on those sites to credit card companies and they get
you know a
Revenue share from from the credit card companies. So that’s a growing part of their business
And you know as I said the beginning like to vary
You know everybody wants
customers, you know online customers and they can gather them because of their expertise in doing this we and we’ve
worked with them on
You know trying to discern like how tough it is, you know start one of these
You know these sites that they have it’s very it’s very hard to get ranked on Google which is the key
You know the key aspect of it, you know, you have to have a lot of good content on there
You have to have a lot of good traffic on there if they’ve all good links. Mm-hmm on there
It takes three to four years to develop
You know to develop a site. So for example in the u.s
They’re not generating a lot of revenue now because these sites are still you’re in formation, but that’s something that is
Not you know easy to to copy. So now over the past
Few years. There was a pretty big run up in the stock
It was trading at two hundred pence and then it recently sold off down to forty pence I believe
Yeah, you talk about that as well as where you see the stock going sure
So basically the run was you know, there they were growing twenty five percent plus mmm
combination of publishing which was growing pretty fast and the media business, which is also growing pretty fast and
You know profitability was growing as well and they did that for four or five years
you know when it first started nobody knew about the name and and
That’s what week. I came in because we saw this thing growing. We like the business model, but nobody cared about it
so we got involved it went from
As you said I went from forty two hundred
pence and
unfortunately, we ain’t get out of that bus at two hundred pets because
you know the valuation was still pretty reasonable and
Then they had they ran into a couple, you know issues with the media business, so they pulled that back
and then
You know the regulation in the UK hurt them so that hurt the posix out of the business
So that basically they had two profit warnings and that, you know took the stock down from you know from 200 to forty
So we had some at, you know, forty forty to that level
You know the stock kind of stayed down there for a while
They had a trading update which was you know, they said trainings in line and the stock started to move
You know upwards, you know kind of slowly
then they had
more recently
trading update and also a tender offer if they announced when the stock was like
You know at seventy basically, so the trading update was again, you know things are in line for the year
Tender offer was there B to tender for ten percent of the stock at?
at eighty pounds
so the stock basically
Went from seven neat, you know ad and actually went above eighty for a little bit like eighty two
And then more most recently, I guess they announced a succession, you know the CEO
So the former CEO was the founder company he’d been on for you know, ten years
You know, so he basically wanted to step back and you know, they found the guy he was more big-picture
kind of oriented and they found a guy who was
More you know detail detail oriented
Very, you know a good background and
So he’s now taking over but the stock took a hit on that
So now it’s trading 72. It’s actually interesting
Arbitrage opportunity you could buy here you buy
300,000 shares at
72 attend to them and get 80 for them. When is the tender offer going to happen you have to tender by
The 9th of October
Near-term, ok, oh, ok, but nice little opportunity there. So with the tender offer, why would the company buy back shares?
at 80 pence
On August 9th rather than simply buying them back now at a lower price, right so they had been buying back stock
But they just liquidity wise they just weren’t getting enough shares in the market
So they decided to do it all in one kind of big fell swoop
Know I think they also think that ad is still pretty inexpensive relative to the value of the company
And also the last reason is it, you know, there could be sellers in the name. They just want to get them out already
I think that’s you know, those reasons are so then bigger picture. Where do you see the stock going?
So we see going, you know at least 120
You know the
So I said I guess at the beginning that you know enterprises ieb thousand trillion three times
Now, you know probably six times is is is reasonable and they have like four, you know forty million dollars of cash
So it’s not it, you know, it doesn’t actually double the stock price, but you know it gets you
significant amount hiring and
Today and over what time horizon do you see it reaching?
120 over the next year and you have a stoploss on this trade or is your point at which something would happen and you would
Back out so we don’t have formal stop losses
You know as sort of a Value Fund, we’re probably more likely to add to something if I pull back pull back, you know
Depending on a few things paying on if the thesis still makes sense and then the second thing is if there’s a catalyst
You know, we don’t generally add
Unless there’s a upcoming earnings announcement or or something. We think is gonna be able to move the stock
Do you see a catalyst now? I mean so I know you’ve been invested in this company
For over a year for help. How long three years four years? Okay
So, is there a catalyst that you would see bringing it from 70 to 120?
Yeah, increasing penetration of the US market in support spreading and increasing penetration of Latin America
Brazil and Argentina are now starting to
You know, there’s sort of online gambling presence there that’s totally new market for them
What would you say is the biggest potential risk to this trade?
Is it simply the the sports betting aspect and waiting for regulations to come on? Yeah, it’s a bad regulation, you know and
one of the bigger markets if somebody, you know, if the regulator’s come in say either shut things down or or
You know impose some huge tax
You know that said something that could you know could hurt them given that we’ve seen a recent sell-off in the stock
Could you give us a perspective from the other side? What is the bear case for the stock right now?
well, I think you know people look at and say oh this is affiliated with online gambling and that’s like a vice and you know
Nothing good is gonna happen to them? You know, that’s
that’s kind of the
prevalent thought of people who don’t know it that well, you know people who know a better would say the the risk is
regulation like how
do these companies regulate in a
kind of normal way
You know a traditional way the other companies of regulation, or do they come in with some?
Ridiculous tax which is really going to shut things down or you know to like been you know bayonet
You know, we you know, we think that you know the problem with all these other
You know with markets with it’s not regulated is it’s the black market
You know people gamble on sites. They’re not paying any taxes on
it’s totally unregulated and you know you have
Kids gambling and you know addicted people gambling and so that’s why countries regulate
So they do have some sort of control over what’s going on and you know
if they regulated in sort of a logical way, they’re gonna get
Tax dollars out of it and they’ll be able to control
you know kind of the experience for people so that’s and that’s been the general experience of countries that have
Regulated but there’s always a chance, you know
the country will
do something crazy and
That’ll you know block guys like excel em from the market. So and that’s why they diversified you know, they
Look like the plunk won’t come one country one
You know business model, you know franchises and now they’re in the you know the consumer
Finance aspect of things in there and a bunch of companies in Europe and they’re getting into the u.s
And they into Latin America, so it’s more and more diversified and should be
You know more attractive to investors
Alright, can you break down your trade in 30 seconds? Actually, it’s extremely cheap
The publishing part of the business has been growing, you know five percent here the last few years
When you know the media
Section of business has broken down
but since it wasn’t that profitable EBIT does they’d
Pretty much the same and we expect publishing to start growing again pretty nicely next year possession sir going next year
And once their stability the stocks going to go up and you see it going up to 100 at least. Yeah, great Jeff
Thank you so much for breaking this all down for us. Thank you. So Jeff is bullish on Excel media ticker symbol Excel
MLM he believes the stock is incredibly cheap and sees changing regulation in the US and Latin America as an opportunity for earnings
Growth, he believes the stock could trade as high as a hundred twenty pence over the next 12 months
Just remember this is a trade idea and not investment advice. You should do your own research consider your risk tolerance and
Investigating Lee for real vision. I’m Justine Underhill


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