03/11/2003
Profits are finally starting to flow at refocused media venture Stream. The London-headquartered group moved into profit in the second half of 2002, and has exciting prospects in both the fixed-line and mobile-phone content market.
THE BUSINESS
Chaired by the level-headed Gordon Robson, Stream provides a wide range of information and entertainment content to consumers through mobile phones, fixed line phones, the internet and digital TV.
At present, the company has two main strings to its business bow.
Stream's core operation is Stream Live Services. It operates live fixed-line and pre-recorded voice services, mainly psychic and astrological in nature. It has a network of over 300 people who despatch these voice services via an advanced 'virtual call management system'. The group has strong commercial relationships with third party media groups, offering 'white label' products for the likes of publishing giant Emap, Express Newspapers and others.
One of its clever marketing tools for its own brand services is a magazine, called 'The Circle' which it mails to more than 100,000 customers each month. The magazine is something of a success story, as it generates significant call volumes for Stream's voice services.
In terms of growth and diversity, Stream Live Services is expanding overseas, having already launched an operation in Australia at the end of last year. This business is progressing well and making good moves towards profitability. Robson is also eyeing up moves into the lucrative US market by the end of 2003.
In its home market, it is contemplating moving into providing voice services with a distinctly adult theme.
One aspect of the voice services arm worth taking note of is Talk Telecom, which operates under license from the DTi. Talk Telecom used to operate as a telephone carrier for third parties but, following recent changes, it now just carries the company's own traffic. The reason for the change was to move the division away from high-volume, low-margin work and get it focused on improving the profitability of Stream's own premium services offering.
The other side of Stream's business – and possibly the most exciting side – is Stream Media. It develops and provides mobile phone content and is making a real contribution to group profits. Among the products it offers are SMS Chat, SMS Dating, and video downloads to GPRS and 3G mobile phones.
Content delivered by Stream to mobile phones is charged to a subscribers bill through 'reverse billing' arrangements with the four main mobile network operators.
Robson, as you might expect, is keen to talk up the changes that have taken place at the company, and the prospects that lie ahead. 'Two and a half years ago, we were about live services, but now the plan is to grow the mobile content side. We have a good revenue stream on the live side, and the potential for growth in mobile media content is vast.'
On the financial front, the company moved from a loss in 2001 to profits at the end of 2002, thanks to a focus on higher-margin areas and an effective withdrawal from low- margin third party telecom operation. In the 12 months to December 2002, sales rose 25 per cent to £8.5 million and a £1.3 million loss was converted into an appetising £200,000 profit.
These results, however, didn't provide much excitement in the shares – which had fallen steadily since float and in which there was very little trading. For all of these reasons Robson and other executive directors tabled a resolution to de-list the shares. Fortunately, this was opposed by the non-executives and was withdrawn with the agreement of the majority of shareholders. 'We could have taken the company private, but the strength of shareholder feeling was stronger than we expected, and we listened,' reflects Robson.
MANAGEMENT
In Gordon Robson, Stream's chairman, chief executive and 32 per cent shareholder, Stream has one of the most inventive brains in the telephone services industry. At BT in the 80s he helped develop the UK's first multi-chat telephone entertainment service. He pioneered a number of inventive telephone-based entertainment and information services, and is also widely acknowledged as the inventor of media-based audiotext services that were first launched back in 1986.
After BT he formed Legion, one of the country's top telephone services providers to media clients like News International and the BBC, before expanding internationally. By 1994, when it was snapped up by French outfit Matra Hachette, the company was the globe's biggest premium rate provider of information services to media.
In 1997, Robson and fellow Steam director Justin Byam Shaw took a stake in Redstone Telecom and formed a venture called Pipertel to market and resell Redstone's premium rate services. In 1998, PNC Telecom acquired Pipertel.
In the managing director's chair sits Michael Spencer, a man with tremendous experience of the media sector, particularly the television market, all of which is proving beneficial to Stream's voice and data services.
Proffering advice from the non-executive seat is Graham Stevens, ex-managing director of The Law Trading Company and footwear outfit Fii. He has also led Sketchley, Jeeves of Belgravia and Plum Holdings. All in all, he shouldn't be short of experience and help when it is required.
PROSPECTS
Stream's prospects are excellent if the trend reported in its recent interim figures continues. First-half numbers to June, posted in early September, were intriguing, with Stream building on the profitable trend seen in the second half of 2002.
Losses of £210,000 were converted into pre-tax profits of £470,000, on sales lifted almost 50 per cent to £5.7 million. Profits at the gross level were lifted 85 per cent to £2.5 million, and Stream's cash balances improved from £1.24 million to £2.05 million.
Sales rose 44 per cent to £3.3 million at Stream Live Services and by a staggering 682 per cent to £2.1 million at Stream Media in the first half.
Understandably, Robson says Stream Media is 'where we see the real growth coming from'. It focuses on all the mass-market content areas, 'like chat, dating and video'. Interestingly, Stream also has a UK betting licence. 'We're launching a betting application for mobile phones', he enthuses, 'we're working on a fruit machine game and a numbers game. We're literally test marketing it now.'
Stream Media has also launched profitable services in Germany and Spain – other European countries are on schedule to follow during the second half – and recently launched in Asia. 'It's early days in Asia', tempers Robson, 'and we're pretty close to launching in the US market, which is potentially huge.
'We believe the mobile phone networks have to make content on mobile phones work, and we're keen to help them. There's 50 million devices out there and we've only just scratched the surface on betting and video.'
VALUATION
Stream recently appointed KBC Peel Hunt as advisor and broker, and a recent note from analyst Alex Jarvis upgraded its forecasts. She suggests the group could now make £1.1 million this year on sales of £11.3 million, rising to £1.7 million on sales of £12.5 million in 2004. In terms of cash, the expectation from Jarvis is that it will improve to £2.8 million, making the £11.8 million market cap seem much too low. The shares are trading on a forward p/e of just 8.7 for 2003 and a mere 7.5 times expected earnings for 2004. This rating is not justified. Buy.
| AIM | £31.89m |
26.50p
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0.00p
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