Like other investors, I endured something of a mixed bag on the performance front over the last year, although suffice to say, the positives thankfully outweighed the negatives.
In particular, Concurrent Technologies (CNC) has served me extremely well, as too has Windward (WNWD) where the latter has recently seen its share price surge on the back of its being acquired at a substantial premium to my mid 40p average.
Also, Alpha Financial Markets (AFM) provided me with a nice premium on being acquired, whilst Time Finance (TIME) has continued to perform very well for me along with Netcall (NET).
Those more than make up for very poor performances at Bango (BGO) Frontier IP (FIPP) and SysGroup (SYS) all of which I have been holding for some time.
Another company at the micro-cap end of the market that I have held for a few years now which has seen me adding to my position along the way is DigitalBox (DBOX), which currently stands at 5.25p per share.
This company is best described as a pure digital media focused business, concentrated on the mobile space, where alongside its branded website publication assets, it utilises its own platform in order to drive traffic, advertising and in turn, revenue and cash generation.
Sure, it is small with a current market cap of just £6m, so along with the space it operates in, will understandably not appeal to some investors.
That said, there are for me, significant attractions on offer, not least, where despite operating in a constantly evolving and shifting market place, DBOX is cash generative and has the potential to significantly scale up on that front.
Additionally, the balance sheet given its size is healthy with net cash of circa £2m, whilst it is on track to deliver PBT of around £0.6m for the current year, moving to an existing forecast £0.9m for the next financial year.
Indeed, that latter number could well be beaten, given the most recent trading news from the company, so it is perhaps reasonable to perceive it delivering EPS of 0.7p for full year 2025, which implies a forward PER of little more than 7 at the current price.
That looks extremely good value to me, for what is essentially a buy-build operation in a market that is predicted to see continued growth, albeit at the high single digit end as opposed to some of the more elevated numbers achieved in prior years.
As for DBOX, if we go back a few years, the shares actually briefly hit 17p, providing for a glimpse of the potential gains on offer here for what is an illiquid stock that can move quickly in either direction, depending on news flow and sentiment.
Having delivered successive market upgrades in 2021 on the back of positive trading, the company was subsequently badly hit by changes in Google algorithms along with FaceBook issues too, which saw the shares retrace sharply.
The company wasn’t alone in being afflicted by specific issues , others across the sector also experienced problems, particularly very small players that lacked the resources to adapt or evolve.
Additionally for DBOX, the woes were compounded by the decision of its largest shareholder Downing Strategic Micro to wind up its fund, leading it to sell down on its various investments.
As things stand, Downing still holds a significant 19.16% of the company, which is slightly lower than the 19.73% held by Patrick Brennan via Storia Credit Holdings, these two being by some way the major holders.
Downing clearly can’t offload its large stake on to the market and with DBOX shares just a few months back sitting at circa 3.5p, it would seem that Downing wasn’t prepared to sell out at such an undervalued level to any potentially interested buyers.
More recently, the DBOX board initiated a strategic review which in part, stated that it would look at the option of actually selling the business and that process which remains ongoing is set to conclude later this month or in the early part of February.
Whilst the situation may appear to represent red flags as an investment now, my view is that it is one of a decent speculative opportunity, particularly in light of the most recent trading update and a few further asset acquisitions.
In its update released to the market in early December, the company stated that it expects revenue to be at least £3.5m for FY2024, with EBITDA ahead of management's expectations.
Although still small numbers, the revenue outcome would be £0.5m ahead of previous forecasts and the announcement came as trading across DBOX’s six brands was stated as having been stronger than management anticipated in the second half of the year, which is the company's biggest trading period.
Audience volumes it said have been strong and there has been an early encouraging performance from the group's latest website launch, Emmerdale Insider with more launches imminent.
What is important for me here, is that they went early on this update, ahead of the all-important Christmas period, so the confidence appears to bode well for a positive delivery on those numbers for the full year 2024.
Although some taking a look at the DBOX offerings may fail to be overly impressed, they nevertheless have appeal to their target markets and importantly possess the ability to generate cash and deliver on profit as revenues scale.
Brands include Entertainment Daily, The Tab, The Poke, Daily Mash and TV Guide.
More recently, Emmerdale Insider, some assets from GRV Entertainment along with Walford News have been added or acquired with little in terms of outlay, but importantly, provide potential to add to volume and scale.
Two of those bolt-on-acquisitions serve fans of highly popular soaps and alongside the GRV buys, signal an additional avenue for generating and driving traffic, which in turn should translate into further revenue.
Although the strategic review is yet to conclude, I believe that the outcome will be one of continuing the roadmap that exists, but arguably with an increased acceleration and this should see further assets added to the portfolio.
What is clear, is that DBOX already has a solid track record in terms of payback on those assets bolted-on, so moving forward, with a continuation of improving trends even at a modest level should deliver on building numbers.
The last broker note from Panmure Liberum was back in September of last year, as whilst the strategic review process continues it is effectively unable to issue new guidance.
That however should be forthcoming shortly and will hopefully provide for some more flesh on the bones in terms of numbers for the financial years 2025 and 2026.
The existing forecast for 2026 is looking for revenue of £4m which in turn anticipates PBT of £1.1m and EPS of 0.7p with net cash swelling to £3.5m.
Given the recent update to the market along with the additions to the group and with further likely to follow, then it would appear reasonable to conclude that the existing 2026 numbers could be beaten.
If the next note confirms as much and the Downing issue reaches a conclusion which it will have to do at some juncture, then the shares should enjoy a decent rerating and could then have some way to run.
The board is packed with industry experience, which sees CEO James Carter and COO Jim Douglas holding 9.3% of the company each.
More recently Claire Blunt, formerly COO at Future plc joined the company as a NED, whilst Chairman Marcus Rich also boasts a wealth of industry experience.
Additionally, a new CFO also a former Future plc person in the form of Richard Spilsbury has been appointed as has another NED, that being Graham Bryce who was formerly COO at Bauer Media Audio.
Although DBOX is firmly down in micro-cap territory, the future growth prospects look firmly intact with further acquisitions fuelling revenue growth which can drop to the bottom line in what is an asset light business.
I am hoping to catch up with management again in due course and will hopefully add further comment.
Sent from my iPhone
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