As we are all plainly well aware, the markets - particularly at the smaller and micro-cap end - have been pretty dire in recent months, with notable poor liquidity.
From a personal perspective and like others, I have seen some sharp movements southwards with a number of stocks I hold, although fortunately, I still sit on some decent profit with the likes SDI, CLX and FNX, whilst I have also taken something off the table with stocks such as CAPD and PMG.
Having parked up some cash, I’m not rushing into buying anything at present, although increasingly, there are some decent opportunities emerging that provide for future potential upside and gains.
My decision to buy in to BAE just prior to the Ukraine conflict has thus far played out well for me with a 37% profit to date, although Pennant which also enjoys exposure to defence has largely been treading water.
Moving on to those that I continue to hold and would consider adding to, I recently caught up with DBOX CEO James Carter following the company announcing to the market that it was making another acquisition.
First though, a quick recap on this company that I have covered here on a few occasions now and which looks a great growth opportunity in the making, with strong cash generation being an increasing theme.
Digitalbox (DBOX) is a digital media business focused on, prior to its latest acquisition three brands led by Entertainment Daily where it engages significant audience participation, which in turn sees monetisation via advertising generated revenue from its customers.
Some big and diverse names are listed as advertisers associated with its brands through its own platform and these include the likes of British Gas, Sky, Unilever and Jet2holidays.
When I spoke with Carter a few weeks where he filled me in on the purchase of TVGuide.co.uk, he sounded cautiously optimistic on the prospects for DBOX in both the current year and beyond.
Touching on the purchase which has been acquired for £550k and will be immediately earning enhancing Carter says that they are hoping it will play out very well as there are lots of synergies.
“It aligns very well with Entertainment Daily” he added, “particularly when you look at the position of the two brands, where it gives us that broad female space that we can really strengthen our business around. It’s certainly exciting, where if we can continue to build on that female skewed demographic which is really providing strong returns for us and increasing engagement, then it is good news.
Carter concludes that he is feeling positive about this latest addition to the wider business.
In short, TVguide.co.uk which is to be renamed Yo.tv provides more than one million monthly users with detailed episode guides, daily video previews, ratings and recommendations of anything worth watching across more than 300 channels. The website has also expanded to cover major streaming services that takes in Netflix, Amazon Prime Video and Now TV.
With streaming becoming ever more popular and seeing new entrants to the market, the new purchase appears well placed to deliver on increasing numbers, which in turn should feed through to cash returns.
At the time of the announcement made on the 30th May, Carter says that DBOX was sitting on cash of £2.8m but added on the day we spoke, he pointed out that the company was probably sitting on significantly more than that. “Our cash position is building and will continue to do so this year as we are highly cash generative”.
Having in the latter part of last year delivered successive upgrades to the market it will be interesting to view DBOX’s Interim Results in September or possibly, any Trading Update that may emerge ahead of that.
In previous conversations with the CEO, he has walked the line of cautious optimism and that sentiment continued in our latest catch up as we discussed the current economic climate.
“There is a broad uncertainty in the market at present in what are challenging times, so there is a lot to consider, although we are managing things pretty effectively”.
And by all accounts most recently the Jubilee event saw a lot of activity for DBOX according to Carter where he added that it would be interesting to see how that would pan out in the subsequent month/s.
Additionally, he concurs with my own view that the tightening of consumer spend may not impact so much on incremental spend, whilst there is also potential for people to remain at home to a greater extent as opposed to visiting restaurants or other leisure activities, which could bring benefits for DBOX.
Either way, the medium to longer term picture looks extremely positive for the company, particularly as mobile adverting spend is forecast to continue to gain momentum despite the economic headwinds.
Indeed, recent reports and comments such as those from Insider Intelligence highlight the consumer shift to mobile as a means for engagement and services.
For example, the US mobile ad market is forecast to reach $168bn this year which will account for 67% of total digital spend and according to Insider Intelligence estimates will increase to $247bn by 2026.
Although at present a relatively small player and under the wider investor radar, DBOX has big aspirations driven by a strong team, so could well have a long way to run.
Although the UK market is obviously smaller than that of the US, it nevertheless has the highest per capita spend in Europe and last year mobile advertising spend in the UK amounted to more than £14bn accounting for 60% of the total digital ad market.
DBOX as an investment is the sort of situation I warm to, where growth looks positive and where patience can deliver some stunning returns, if things pan out as hoped for and envisaged.
Aside organic growth, further acquisitions are very much on the agenda and although the latest buy is small as Carter acknowledges he speaks in term of taking further steps to scale up.
To this end, the CEO says that they could probably mange to execute on a much larger purchase of circa £5m through a mixture of its own cash and some debt.
That would play well for shareholders he adds, without any dilution from a raise, although he points out that further down the line if they considered something much larger with a £20m tag they would then have to go back to the market.
There is, Carter says, an appetite from Institutions who would certainly be interested at that level, so in time that looks potentially a likely and obvious way to go.
At present there isn’t much in the way of an Institutional presence at DBOX save for Downing which has a notable stake now standing at 19%.
This represents a reduction from the previous 21% it held after a top slicing following gains, although those shares were placed with Canaccord who Carter says was keen to get on board.
And remaining on that front, it is interesting to note that DBOX CFO David Joseph this week informed the market that he had purchased 600k at 9p each, which looks like a positive endorsement on the future prospects.
The shares are currently sitting at 9.5p valuing the business at £11m which continues to look like decent value, given the strong cash generation and forecasts in the market where with a PEG of 0.3 and PE of 11 falling into single figures the attractions look apparent.
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