MGM Taps Into Wireless Future
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With a mere 9.5 million shares on issue, the schools communication specialist can’t be accused of recklessly diluting investors with serial capital raisings.
Given that, we’ll excuse the Adelaide-based minnow for passing the hat around for $380,000 in its first raising in a decade.
The one-for-eight rights offer will fund marketing of MGM’s new-age product: a phone watch for primary aged kids called Spacetalk.
The watches, which run off Telstra’s 3G network, allow calls and messaging between the child and 20 trusted contacts. While they require a Sim card, they don’t require a separate mobile phone.
Unusually, the software and hardware was developed in-house by the Adelaide-based MGM, at a cost of a mere $800,000. “A lot of people don’t believe me,” says MGM CEO Mark Fortunatow.
The ‘wearable’ is a logical extension of MGM’s existing suite of SMS school attendance management tools to monitor absenteeism and locate the miscreants before they have too good a time.
Criterion’s initial take on the Spacetalks is that no-one will buy the $349 devices because kids already have a communication device called a smart phone.
As it happens, MGM is targeting the 4-12 year old cohort – 2.1m urchins in all -- whose parents have yet to succumb to pestering about how every other kid has an iPhone 8 (or whatever version we’re up to).
Fortunatow is circumspect about how many Spacetalks MGM is likely to sell, but its scenarios are based on an annual market of 10,000 to 20,000 watches.
Selling 15,000 – let’s take the midpoint -- would boost MGM’s revenue by $5.2m and we’re talking about a company that turned over $2.5m in 2016-17.
“There is a market for these devices but no-one knows how big it is or how quickly it will grow,” Fortunatow says.
Unapproved Chinese and South Korean devices are available on the grey market, but are useless outside of city areas.
After a long quiescence, MGM shares have burst into life on the back of this month’s Spacetalk launch, as well as last month’s disclosure that its absentee management product will be used in all 850 Western Australian government schools.
MGM already services about 400 WA schools and 1061 overall in Australia and NZ.
“We have been under a rock for two years from an investor relations perspective,’’ Fortunatow says. “We were working on Spacetalk and weren’t in a position to disclose the extent of our activity.”
Normally profitable, MGM lost $530,000 last year, mainly the result of Spacetalk development costs and an $187,000 bad debt provision.
This year’s profit depends on how many Spacetalks are sold, the company is expected to return to the black. With a sub $5m market capitalisation, $1m of cash on hand and no debt, MGM’s valuation would make even a penny-dreadful explorer blush.
Despite the hype around Spacetalk, chary investors subscribed for only $170,000 of shares. The partial underwriter, interests associated with Fortunatow, acquired a further $122,000.
Given the raising was struck at 35c, retail punters (who generally eschew rights offers) have done themselves in the eye.
The New Criterion is authored by Tim Boreham.
Many readers will remember Boreham as author of the Criterion column in The Australian newspaper, for well over a decade. He also has more than three decades' experience of business reporting across three major publications.
Tim Boreham has now joined Independent Investment Research and is proud to present The New Criterion, which will honour the style and purpose of the old column. These were based on covering largely ignored small to mid cap stocks in an accessible and entertaining manner for both retail and professional investors.
Disclaimer: The author nor Independent Investment Research have received a fee or any kind of inducement for this article. The New Criterion is not intended as specific investment advice and readers should contact a licensed financial adviser.