MBE spent ~$14m in FY16 on technology: they now have a top class...

MBE spent ~$14m in FY16 on technology: they now have a top class Direct Carrier Billing (DCB) platform which is highly scalable into the new markets they are opening up with their client Mobile carrier groups. They also have acquired and further strengthened performance marketing businesses which they are also taking to their new markets.  Conservative estimates of 30% organic growth from their domestic market of Australia will be buoyed by the rollout of their offerings into their new markets. 

They have opened up Malaysia, Pakistan and Norway in FY16. By assessing their Telco relationships with Telenor and SingTel, we expect MBE to open up Sweden, Finland, Philippines, Indonesia, Thailand, Myanmar and Cambodia over the next 12-24 months. This will take their addressable population to over 400m subs. 

On FY16 earnings: their tax rate increased from 24% to 35% owing to a change in accountant and their treatment of tax, we expect almost $1m to come back in FY17 on that move. We expect the tax rate to go back to 24% in FY17 and going forwards. 

Depreciation increased from $900k to $1.9m in FY16 owing to their investment in their new ADOBE system integrating their technology stack and materially reducing their cost of opening up new markets. It was also owing to the increased PPE spend owing to their move to a new office.  MBE has $5.6m of earn outs to pay in FY17 that will be funded by cash flow, there remains another $7m of earn outs to be paid in FY18, but this is due to the superb performance of their acquired businesses. 

M-Marketing continues to deliver strong organic growth in Australia as a best in class offering. Rolling out their operations to new markets should drive growth of over 30% from the marketing side of the business.


 Annualising the Q4 run rate would deliver $72m revenue, and with 30% growth that would deliver $93.6m for FY17 revenue. We therefore believe our Revenue forecasts are now conservative. They have come down slightly from our initiation in November 2015, but if they achieve these numbers the stock will be trading near our target price.