When I was a child there were only three TV channels. Today there are thousands and their content is beamed across terrestrial, internet and mobile platforms.
That’s why many broadcasters rely on Pilat Media’s flagship Integrated Broadcast Management System (IBMS) to help them cope with the resulting media complexity. IBMS is one of the industry’s most comprehensive software tools, allowing television stations to manage their advertising, scheduling, commercials, bookings and catch-up programmes.
Pilat’s client roster contains around 60 blue-chips, including Sky, BBC World Service, Five, Virgin Media, AT&T, Discovery and CBS.
The one notable exception is Rupert Murdoch’s Fox Television. Fox was a customer until last year when it suddenly pulled the plug on the contract half way through implementation. Pilat settled out of court for a £544,000 payoff, but suffered a £2.3m one-off charge relating to unpaid debts. However, this looks like an aberration and did not stop Pilat from posting topline growth of 3% in 2011 (sales were £22.5m), thanks to strong ongoing maintenance fees.
Pilat Media (Aim: PGB)
Indeed, recurring revenues continue to grow steadily and are 26% of the total. There are also some attractive openings in central Europe and Australia. Net cash closed in December at a robust £6.7m and CEO Avi Engel recently highlighted that the order book already boasts around £17.5m of 2012’s revenues.
As always, there are a few risks to consider. Being small, Pilat carries a higher level of risk than it would were it larger and more diversified. The industry is also characterised by lumpy orders. Once signed, these can suck in working capital as implementation tends to take a long time. Lastly, the media industry tends to be cyclical and another recession could put a brake on customer rollouts.
But given the ever-increasing consumer demand for digital content, the type of IT expenditure that helps Pilat should prove pretty resilient. What’s more, there is an outside chance of a future bid from SintecMedia, which is a 24% shareholder and which failed in 2009 to acquire Pilat at 26.5p per share.
In terms of valuation, I would rate the stock on a ten-times EBITA multiple. Adjusting for the firm’s cash produces an intrinsic value of about 50p per share. First-quarter results will be released shortly.