Isentia Group Limited
ASX code: ISD
Share price: $1.485
Industry: Software & Services
Forecast FY2018 Dividend: 7.5c
 
Isentia Group Limited (ASX:ISD) is a media intelligence business focusing on collecting and disseminating media content, tailored to the needs of clients.
Arguably one of the worst share price reactions coming out of the most recent reporting season, has pushed the share price down to a level where dividend yield is starting to support its share price, thus warrants further work.
The business dominates the media monitoring space in Australia with approximately 90% market share and is the leader in the fast-growing markets of Asia. ISD provides time-critical and highly relevant media intelligence information to help clients (major brands and politicians) manage their image. The business model is supported by high levels of recurring revenues, solid cash flows and a strong balance sheet.
It’s no great surprise that the share price has more than halved in less than 12 months with the Company announcing two downgrades in the past 6 months and most recently, the resignation of the CFO who had been with the business for over 7 years.
The two downgrades, November’s AGM and the 1H17 result, mainly revolved around King Content – a business recently acquired by ISD. King Content lost four of its top ten clients, contributing half of its revenue, at the start of 1H17. This resulted in the expectation of the business becoming that of an earnings detractor.
The King Content disappointment was coupled with signs of competitive erosion of its core ANZ media intelligence business. Segment revenue increased just 3%, and EBITDA fell 1% to $23.7m in the 1H, reflecting margin contraction from 45% to 43%. Of primary concern was ISD’s failure to avert client churn, which increased to 6% (2% of revenue).
Taking this all into account, the share price reaction now appears to be pricing in much of these. In our view, this represents an attractive entry point into a business that later this year will be releasing a significant product upgrade with the release of “Storyview”.
Storyview will bundle an upgraded social listening product with traditional monitoring currently on Mediaportal. It will resemble a typical social media timeline, with media intelligence collected from disparate sources and presented on a linear feed tailored to each client. At the back-end Storyview will perform analytics across every piece of content and will determine which is most influential, irrespective of the source – this will be unique in the market, and may well give ISD the edge it needs
In our view, ISD represents an attractive business exposed to industries growing at above GDP levels, pays a reasonable fully franked dividend yield of ~5.0% and is trading below our assessed Intrinsic Value of ~$1.90 with a near term catalyst likely to see the gap between the current price and our value close.
Originally published in The Australian, Tuesday 28 March 2017.