It isn’t too often that you feel you have hit upon a company at the right level that ticks the boxes and provides an opportunity for a growth runway. But, in the case of DigitalBox (DBOX), I am hoping that my entry point of a few months back at circa 11p will prove to have been well timed.
The company - which I have already covered here a couple of times now - is a pure digital media company play, with emerging publishing technologies that are 100% digital and mobile focused.
It consists of the brands Entertainment Daily, The Tab and The Daily Mash and operates in a growth market that looks set for further acceleration, particularly in an ever evolving digital world. Having over the last year announced a number of upgrades to the market, DBOX this morning delivered impressive preliminary results for full year 2021, which in turn made for pleasant reading.
This saw revenue increasing by 68% on the prior year to £3.6m with EBITDA of £1m being achieved on the back of strong cash generation, which sees a net cash position on the balance sheet of £1.8m and gross cash standing at £2.8m. Although DBOX at this moment in time remains something of a micro-cap and may not appeal to many investors, the board here it has to be noted is highly ambitious and packed with experience which aims to grow the business substantially by both organic and acquisition assisted means.
Speaking with CEO James Carter this morning he is clearly pleased with the performance and numbers, whilst sounding a confident note on the commencement of the new financial year.
Commenting he said, “what happened during the pandemic was that people moved to digital media and switched to mobile solutions within that and I really can’t see this changing now”.
Carter’s view appears to be held up by market research analysis, which cites mobile as being a highly and increasingly attractive medium for advertisers, where market share is now forecast to increase from the 60% recorded in 2021 to 70% by 2026.
Speaking of the various brands within the business Carter said, “we had a good performance from Entertainment Daily where we drove the session values on that one site by just over 50%”. He also adds, that there was a particularly strong performance in Q4 and that people looking for high quality inventory, especially in the female market sees DBOX appearing to be in a pretty special place. “A lot of our advertising partners where we work with about twelve to fifteen across the market and which are big players are very keen with the fact that we do have female audiences at scale compared to some of the other publishers. If you look at that, we are really are up there with companies like Future because we are delivering big chunks of female audience and that is beginning to show a real premium. So, we are getting a real dividend out of that and I think remaining focused on developing synergistic sites and opportunities will help us scale that female audience up further and that is something we are very much focused on”. Entertainment Daily, which accounted for 78% of the gross profit, delivered 81% growth in direct google traffic with 49% growth in session values, whilst it was also named as the fastest growing news site in the UK.
The Tab, which serves the youth market predominantly across the University demographic has also made strong progress and looks like a shrewd purchase since being acquired.
Speaking on this publication the CEO commented, “we had been tailing the Tab for some time prior to buying it and we had been in conversations with it, although the business had only ever been loss making. But, we were able to bolt that on and convert it into contributing straight away, which really demonstrates our model and we really got it at a good price”.
Having acquired the brand and invested, pay back has been quick, with highlights from 2021 seeing it recording revenue of £0.86m along with hitting 150k followers on Tik Tok, registering 148% growth in Netflix channel along with a 121% delivery of session value growth in Q4.
The third aspect of the business is the Daily Mash which was commissioned by UKTV’s Dave channel and which Carter says remains very positive in terms of its TV presence and although he can’t confirm at this particular time that it is in line for being commissioned for another series, he says it remains very, very positive.
Additionally, he adds that it performed incredibly well in Q4 of 2021 on Dave and was in its top three shows for audience over the whole year.
There is also a separate subscription service here that was launched last year, purely as a trial and that has, Carter says done really quite well without any marketing.
As a result, they are now extending it to what is best described as a Mash premium which having only been released a few weeks ago could well garner further interest.
To complement organic growth, acquisitions remain firmly on the agenda and it is an area that if successfully executed would most likely see an acceleration on both revenue and profits.
Commenting on this area, Carter said, “I’d certainly like to see something happen this year for sure, absolutely, and it wasn’t for lack of focus that we didn’t move on anything last year. We did have things in place on which to execute, but as a board we decided not to proceed, where in one instance the subject just wasn’t appropriately priced. We believe we were right to pull out of the one or two from last year, but I am confident that we will do something this year”. And touching on the new financial year where DBOX is only three months in, Carter says that have had a very confident Q1, but that there is obviously another nine months to run, so time will tell whether there is a following of last year’s trend with upgrades coming through.
Broker Panmure Gordon has upped its target price to 18.7p on the back of these results against the 13.75p as I write and publishes forecasts that it is comfortable with given the economic and geopolitical backdrop, which arguably leaves the door open for upside risk.
This sees a full year 2022 revenue forecast of £4.1m with EBITDA at £1.25m and a swelling net cash position to £2.8m with EPS of 0.8p.
Looking beyond this year to full year 2023 the same broker anticipates revenue rising to £4.6m providing for EBITDA at £1.62m and sizeable net cash at £4m, whilst EPS for the same year are projected to come in at 1.1p.
This sees the stock trading on a PER of 17 falling to just over 12, which for a cash generative growth play with a solid cash cushion looks decent value moving forward.
Of course, should the DBOX board execute on a strategic bolt-on acquisition this year, along with the potential for an upgrade should the current strong start continue, then forecast numbers would certainly be upped and no doubt see the stock featuring on a wider investor radar.
Interestingly the shares opened up this morning hitting 15.5p before easing back on heavy volume, as no doubt some elected for a quick profit.
Nothing wrong in that of course, but my horizon is decidedly longer on the company, where I am hoping for some really meaningful mid-long term returns on the back of what should be ongoing progress.