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Thanks Madamswer, your musings have provided some very valuable...

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andy777

530 Posts.

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13/07/18

16:24

Post #: 34333071
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Originally posted by madamswer ↑

"Normally I'm not concerned with share price falls - in fact I prefer the price of the stocks I'm interested in to be falling rather than rising, so I can buy them more cheaply. In OMN's case however, it makes me uncomfortable because they're still reliant on equity funding, and a low share price means more dilution to my holding when they raise capital. It's real value destruction wrought purely by a falling share price. I'd prefer management in this particular case to at least make a decent effort at getting the OMN story out there as much as possible in order to avoid a potential mispricing of their stock due to a lack of awareness of the company."

@vagabond,

I think your fears of dilution are a bit unfounded; at least, I think that if you want something to worry about, there are far greater things to worry about with OMN than being diluted.

The reason I say this is that, by the time any additional funding is required, namely in some 12 to 15 months' time, it should be quite evident whether or not OMN will have the makings of a real business. Which will be what informs whatever the share price will be at the time.

This is really a case of a binary outcome:

Either:

There is real evidence in 12 months' time that this is a real business, and is on track to generate hundreds of millions of dollars in Revenues and Profits. In which case the share price will be a great deal higher than it is today, thereby bring accommodative to an equity raising, which would presumably only need to be a modest one, anyway, if cash flows are already meaningful... so any dilution would be minimal. Besides, if it does prove to be all that it is cracked up to be, then it would be a highly bankable business, and commercial lenders would be falling over one another to extend generous debt terms to the business, meaning there would in all likelihood be no need to raise equity capital, anyway.

Or:

In the event that there is little evidence of any real Revenue traction in 12 months' time, the matter of additional funding will be totally moot, because it will be very difficult to raise capital for a business that is not a success, and even if they could drum up some interest for a capital raising, the share price will be at such a low level, it will make it prohibitively expensive to issue new stock.

So, either the thing succeeds, in which case dilution is a non-issue, or it fails in which case dilution doesn't matter anymore because we would have done our dough, anyway.

"I have to admit, I'm still not quite convinced by the OMN concept. I'm not sure having more data on shopping habits will translate into squeezing more sales out of consumers. And if OMN's services won't increase sales, it's of no use to their retailer customers. I bought into OMN originally as an asset play, drawn to it by its large discount to net cash and acquired software businesses. But if they manage to pull off significant product sales, I'd be happy to take that outcome too."

With respect, I think that viewing this as an asset play because of the cash is somewhat flawed, because - as discussed earlier on these threads - that cash is being consumed at quite a rate, to the extent that by not long after this time next year, it is possible (if they don't secure meaningful Revenues) that the cash balance will be less than the current market value of the company.

So, once again, an investment in OMN boils down to whether or not the company will be able to generate meaningful revenues from the products it has developed, and is developing.

And on that note, just to touch on the nature of the business model which I see as being decidedly different to your suggestion of squeezing more sales out of consumers.

OMN's success is not dependent on an increase in the size of the consumer spend pie; rather, it is a function of the degree to which OMN's products and services can demonstrate to the entities (individual retailers, chains, shopping centres, brand owners) that use those products and services, are able to gain a larger share of the existing pie. That, and being able to conduct their businesses more efficiently and with greater degree of control based on a fuller information set.

NB. Don't get me wrong; I am no cheerleader for this business. It is still unproven and a large element of the business involves creating a need for a service where that need currently doesn't appear to exist. But the thing that interests me is that the stock is not being priced for much in a way of success.

PS. And the other thing that has some appeal to me is that, as an incoming shareholder today, I am not funding the development work from scratch.

Up until now, some US$200m has been spent on this business - almost triple its current market value. Of course, that US$200m might simply be dumb money, but it would be somewhat out-of-character for the people who were behind that spend, because they have done mostly a lot of very smart things over an extended period of time.

Expand

Thanks Madamswer, your musings have provided some very valuable insights as usual. Being a former WFD holder and an active participant in spinoffs, I purchased a small holding in OMN at higher levels than the current price. I admit to using the 28th of June as a bit of a cutoff in terms of forced selling - obviously in hindsight 2 weeks later would have been nice!

After spending an extensive amount of time watching every video and reading every document, the idea appears sound to me. In effect they seem to be building a loyalty program that will provide benefits to the shopper. Rather than having to lug around 10 loyalty cards, onemarket will provide a single platform, along with AR and voice recognition. When I first read about AR it seemed a bit 'new idea' but looking into it more, it seems like a great idea. Just hold up your smartphone and get info on each store overlaid on the screenshot via GPS. Don Kingsborough has a good history of enterprise success and as mentioned the Lowy family are powerful backers, who must have deep networks amongst B&R retail.

Probably the biggest stumbling block is getting retailers to share their data? I have no doubt if they are able to get large numbers of customers to sign up this business will become valuable. My main concern is the protective nature of B&R retailers. Hopefully the amazon threat will overcome their aversion to data sharing. Obviously many of these stores are natural competitors and will be reluctant to provide data that could be used against them.

This situation as you mentioned seems unappealing for many investors. Not only is it an unnatural holding for many, the binary outcome is generally despised by the investing public and fund managers alike. Even for me (despite trying to use my maths/logic brain) the range of outcomes is pretty yucky. The potential for a complete wipeout must be in most investors minds. However, the strong right skew to the possible outcomes and the fact that several hundred million have been allocated/spent already, by sensible management, probably make this a lottery ticket with an expected value greater than 1.

I promised myself I would stop buying these types of businesses! No doubt the ride will be bumpy.

OMN Price at posting: $1.02 Sentiment: Buy Disclosure: Held
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