Yoomedia oversold after warning

In mid-June, Yoomedia, Britain’s biggest interactive media company, came out with a profit warning. Its shares were knocked back from 9p to 3.5p – which compares with a high for the last 12 months of 28.5p. They have since struggled up to 5p following buying by two directors at 4.4p. But, with a market capitalisation of just £23.5 million, Yoomedia now looks critically undervalued on a 12-month view.

Yoomedia has undergone a complete transformation in the past 18 months. With the takeovers of Digital Interactive Television Group and The Gaming Channel, it has turned itself from being a small pay-per-play games and chat business on cable TV into a business with a mass of interactive TV and mobile technology, providing interactive services to the BBC, ITV, leading companies such as Nestle and William Hill, and the National Health Service. It has three gaming TV channels and provides services on all four UK digital platforms. At the last count, turnover was running at about £8 million a month.

In 2004, there was a thumping loss, but Yoomedia was confident of reaching break-even at the operating level (before interest, tax, depreciation and amortisation) by March. This it has done, and the statement in June said that cashflow should turn positive during the third quarter of the year. But results for the year will be affected by lower than expected growth in the games and gambling division.

None of that deterred chairman Michael Sinclair and director Leo Noe from spending £165,000 adding to their holdings in the wake of the announcement. There has been a management change, with Neil MacDonald taking over from David Docherty as managing director. His job will be to get the gaming side humming. The company is planning to launch a range of new gambling and dating services (it owns Dateline) for the latest generation of digital TV and mobile phone networks and new interactive TV formats.

Yoomedia’s break-up value alone argues for a strong buy. Net worth topped £43 milion at the last year-end. For a company with £100 million of turnover, operating in fast growing markets, the latest statement was a disappointment; but it was not a disaster. Yoomedia has cash of £6.4 million at the year-end and it is slated to achieve cashflow break-even inside the next couple of months. It looks well worth following Sinclair and Noe by picking a few up at the current 5p.