Morningstar

Morningstar, Inc.

Equity Bottom-Up

We will cease research coverage of no-moat-rated iSentia on April 19, 2018. Our decision to cease coverage is based on a number of factors including the relatively small market capitalisation, of around AUD 170 million, which puts the company well outside the S&amp;P/ASX 200 index. We originally believed iSentia had a narrow economic moat based on customer switching costs but downgraded this rating to nomoat in mid-2016 on concerns competitors were winning market share. Although this downgrade was…

ISentia’s first-half result was broadly in-line with our expectations, and we maintain our earnings forecasts and fair value estimate at AUD 0.88 per share. At the current market price of AUD 1.09, we still believe the shares are overvalued. The 10% share price fall that followed the result likely reflects the market’s concerns regarding the rapid decline in earnings and a lack of confidence in management. In this regard, we weren’t surprised that managing director and CEO John Croll resigned…

We have cut our fair value estimate for no-moat-rated iSentia by a further 15% to AUD 1.60 per share, as we now expect software development costs to be materially higher in future relative to recent years. At the current market price of AUD 1.64, we believe the shares are fairly valued. Our valuation implies a fiscal 2018 price/earnings ratio of 12 and reflects our forecast EPS CAGR of just 2% over the next decade, excluding a short-term earnings bounce in fiscal 2018. Management didn’t provide…

We have cut our fair value estimate for no-moat-rated iSentia by 16% to AUD 1.90 per share and downgraded our stewardship rating to Poor following the company’s third profit guidance downgrade within a year. Despite iSentia’s claims of long client tenure and low client churn, these metrics apparently don’t equate to pricing power. Our forecast revenue CAGR over the next decade has fallen to 3.5% from 4.8%, with our average EBIT margin over the same period falling to 21% from 23%.
Although the 6%…

Australia

iSentia Group Limited operates software as a service business. The Company provides media intelligence software solutions and systems to improve timeliness of business and communication decisions.

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