Stock in focus: Adveritas (AV1.ASX)
Adveritas exited its trading halt yesterday to announce it has secured $6.5m in Placement from existing long-term sophisticated investors and new high-quality institutional investors. An additional $2.5m is to be raised via a Share Purchase Plan for eligible shareholders at same the same price of $0.048 per share – which will bring additional $9m of cash bringing total cash reserves to $12m.
The share purchase plan allows registered shareholders as at Friday 12 May 2023, to apply for up $30,000 worth of shares at $0.048 each.
It is a disappointing result given that our initial discussions with management included no requirement or indication for capital raises, and that they did raise capital last year (the plus was it was done above its average share price so less dilutive). Revenue growth has been promising however they have struggled to hit cashflow breakeven. They are exposed to advertising spend, which is seeing signs of slowing down, and headwinds for the next year or two mean it will be much harder for them to grow and reach breakeven – which is now a lot more important now than it was back in 2021.
We are wary of another capital raise next year, given that the stock is trading at its capital raise price we see no reason to participate. We downgrade Adveritas to a HOLD due to its current cash burn (almost $3-4m per quarter), slower than expected revenue growth over the last year, and a challenging macro-economic environment ahead. We still like the product as it is a unique offering, but would-be buyers at a much cheaper risk-adjusted value given the current market conditions or when we see the company near cashflow breakeven and see a lower risk of another capital raise over the next 12-18 months.
Australia
The Australian market (ASX200, +0.1%) edged up on mixed day of trade and a busy day of news flow.
Elders was the worst performer down -13.2% yesterday after delivering a weak result for the first half of 2023 financial year – a full analysis will be out tomorrow morning.
On the flipside funeral operator Invocare jumped +12.1% after TPG Capital came back with a revised takeover bid of $1.9billion or $13 per share. We choose to avoid the stock now as it fluctuates on takeover sentiment.
Aristocrat rose +2.1% after revealing plans to acquire Nasdaq-listed gaming software company NeoGames for $1.5 billion to accelerate its growth into the US$81 billion online casino, lotteries and sports betting sector. This will accelerate growth for ALL by acquisition, rather than a ‘build out’ strategy for their online casino business on their own, with amble cash from the capital raise in 2021, and good history with acquisition activity. Remain BUY rated with strong balance sheet and positive cash generation.
US
Briefly noted
The EU approved Microsoft’s acquisition of Activision-Blizzard – expect the software and gaming giants to go in batting hard for the UK to approve the merger: at this point it is the only hold-out. Buffett added Diageo to Berkshire’s portfolio, which we have as a buy – view the report here. Growthy fund manager James Anderson (ex-Baillie Gifford) has been employed by the Agnelli’s to head a new quasi-family office. Ackman built up a +$1B stake in Alphabet – we remain buy rated on the stock
Vice files for bankruptcy
In the mid 2000s Vice was a big deal. It had investments from James Murdoch, TPG, Soros Fund Management and Disney. It was “edgy”. It had shows on HBO, a magazine, award winning journalism and a lot of people calling it the future of media. Buzzfeed was also a big deal. Buzzfeed recently cut its entire newsroom and its stock currently trades at 55 cents; Vice recently filed for bankruptcy protection. There’s not a lot to say here other than it’s interesting how the “new media” of the internet age mostly failed as their older, more luddite brethren have caught up – The New York Times, New York Magazine, The Atlantic, etc. The good bits of Vice and Buzzfeed were consumed by legacy media; a lot of their best writers went over there as well; essentially the “new media” of today is a kind of husk. What went wrong?
For one the cost of content outweighed the income from advertising. If you are Alphabet or whoever, you make a lot of money off advertising and your bots are crawling the internet every day for new (free) data. If you are Vice, you have a lot of journalists and marketers and photographers and so on to pay. It doesn’t work. The advertising income has never been quite enough. This is a lesson legacy media learned relatively early: The NY’r, The Atlantic, The NY Times and so on are all paywalled. The NY Times has +10 million subscribers now, and the FT sits at +1M subs (the FT is $69 per month, so that’s ~$800M or so of revenue assuming for some discounts and annual subs along the way). This is a distinct reversal of the old newspaper model.
The old newspaper model was: sell ‘em cheap and make money off advertisers. The new model is: sell it expensive and do some targeted paid partnerships. It’s not as good of a model: the NYT still runs at razor thin margins; but it’s profitable. One reason for this is because a lot of that “cheap” ad revenue moved to Alphabet and Craigslist and so on; and the other reason is the cost of news went up significantly – they had to pay people more and there wasn’t enough advertising dollar to go around. Vice and Buzzfeed, which never had paywalls, were left behind, and now one is bankrupt (and the other left for dead). It’s hard to imagine anyone predicting this fate c.2009 for the “new media”. Speaking of the old guard; owner of the WSJ, News Corp, recently reported results – they were pretty good. EPS of 0.9c vs expectations of 0.8c; revenues of $2.45B – notably subscription revenue (mostly for the WSJ alone) increased +9%. It’s a brave new world.
News Corp – subscriber growth