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RhythmOne – “brand consolidation” announcement amidst share price slide

By Steve Moore | Thursday 9 November 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Last week RhythmOne (RTHM) “note(d) the recent weakness in its share price and confirms that it is not aware of any developments since the release of its Trading Update on 17th October 2017 that would change the outlook contained in that statement”. The shares have since continued to fall and there is now a “RhythmOne announces brand consolidation” announcement…

This is that the company “has integrated RadiumOne's data-driven marketing technology and solutions into its end-to-end programmatic platform. The combined company and strengthened sales team will go to market under the RhythmOne brand name with an updated look-and-feel, market positioning and capabilities”. This has been enough to boost the shares slightly to 260p, though they still down from a (recent 10-to-1) consolidation-adjusted more than 485p earlier this year and more than 300p on the October trading update.

That update included that “performance for H12018 is expected to be in line with management expectations” - noting adjusted EBITDA of $1.5-2.0 million and cash on hand and marketable securities of approximately $37 million. Brokerage N+1 Singer updated including that “the company is guiding to meeting our full year $16m EBITDA expectation, in part because OPEX is expected to continue to be materially lower”.

Hmmm. And even if achieved, adjusted EBITDA is very different to net cash generation. Singer concludes that “the shares have been drifting off during the YUME acquisition process. We expect the shares to recover as the process nears completion (due early 2018) and investors get confirmation the company is tracking towards the delivery of the critical leap in profitability this year”.

I’ll monitor for that, but at the current juncture with the market cap still approaching £129 million remain cautious and continue to avoid.

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