Strip out its cash pile and Crossrider is really good value: enjoy this free share recommendation on Crossrider extracted from the latest edition of the premium Trendwatch newsletter…
WE KICK off our six recommendations for this issue with Crossrider, a company we liked so much that we’ve already bought it for our Trendwatch UK Equities (aka TAM 2.0) portfolio.
Crossrider has two of the hallmarks that often characterize our high fliers. First, it’s involved in online marketing. Second, it’s an Israeli business. Israel is very good at technology; and audit firm Deloitte recently rated Crossrider as Israel’s fourth fastest-growing Israeli technology company. Here’s its growth record:
| Year | 2012 | 2013 | 2014 | 2015 | 2016 |
|---|---|---|---|---|---|
| Revenue ($m) | 2.52 | 14.8 | 71.1 | 84.6 | 56.5 |
| Pre-tax profit ($m) | (2.92) | (12.3) | (11.8) | (17.6) | (10.7) |
| Earnings / share ($) | (0.019) | (0.068) | (0.055) | (0.029) | (0.036) |
Crossrider’s core business is distributing desktop and mobile applications worldwide. Until recently, its main suite of products was Reimage, an affordable, simple to use, solution that offer users a repair service for computer and mobile operating systems via the internet. This patented tool has been downloaded by over 30 million users and repaired millions PCs and mobile phones. No wonder this product is in high demand, given the ever increasing number of hacking attempts and security breaches that can play havoc with computers.
Recently, this offering was augmented by the acquisition of CyberGhost for a maximum consideration of €9.2m (£8.0m), split roughly 50:50 between shares and cash.
This is a software-as-a-service (SaaS) application based on a virtual private network (VPN) that safeguards personal information when browsing the internet through unsecured mobile hotspots. The app prevents online tracking, blocks malicious content, encrypts your online activity and allows access to restricted websites (for example, you can gain access to BBC’s iPlayer even if you live on the other side of the world). The company currently secures and anonymizes the online presence of over 10 million users across the globe.
It also offers a number of non-core soft-ware products all related in some way to online marketing. These products include DefinitiMedia and Ajillion.
At this point, you may be wondering what it is about Crossrider that attracted our attention, especially as it’s still making substantial losses. Well, we can go some way to setting your mind at rest on that score. It’s expected to move into the black this year, as well as commencing dividend payments, as this table shows.
| Year | 2017 | 2018 |
|---|---|---|
| Revenue (£m) | 70.4 | 82.8 |
| Pre-tax profit (£m) | 3.59 | 5.28 |
| Earnings per share (p) | 0.049 | 0.061 |
| Dividends per share (p) | 0.09 | 0.13 |
And the shares are not especially expensive, at least for 2017, given the rate of profit growth. The forward p/e is just under 18 (reducing to 14.2 in 2018) and the 2017 PEG is a lowly 0.68.
Convinced now? Probably not. And nor should you be, because there’s more.
When Crossrider floated on AIM three years ago this month, it was refreshing to see that it raised £45.9m in fresh cash for the company, as opposed to paying the owners. That cash is still on the balance sheet. It now has a cash pile of £51.7m.
Strip that out from earnings and the shares are now trading at around 7.5 times earnings estimates, not 18. And that doesn’t take into account further likely earnings increases as it deploys that cash into earnings-enhancing acquisitions. We have every confidence in the Board in that respect, as clearly it isn’t in any hurry to splash the cash on the first thing that takes its fancy.
Its latest interim results were published as recently as Monday of this week, and were well received.
Revenue rose from $28.7m to $30.1m. Adjusted EBITDA decreased from $3.5m to $2.9m as it wound down its legacy Web Apps & Licence segment. By the end of this month, all its revenue will come from subscriptions.
The statutory pre-tax loss was $0.9m (H1 2016: $1.1m). The company remains highly cash generative. Adjusting for one-off non-recurring items, its operational cash inflow was $2.6m, bringing its cash pile to $68.7m (H2 2016: $72.1m).
It has now completed the integration of CyberGhost, which is performing ahead of expectations.
It now has 800,000 users across 164 countries. With its focus now on recurring subscription revenue rather than one-off licence fees, Crossrider looks set to grow quickly both organically and via acquisitions. CyberGhost looks to have been a shrewd purchase.
We now look forward with keen interest to see what it does next with its cash pile – as well as moving decisively into the black this year.
BUY CROSSRIDER (69p; forecast yield: 1.3%; market capitalisation: £97.3 million; initial stop-loss: 55p; EPIC: CROS; sector: Media & Publishing; classification: AIM; website: crossrider.com; tel: n/a).
We hope you enjoyed this this free share recommendation extracted from the latest edition of the premium Trendwatch newsletter…
