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87.5¢ onemarket limited

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vagabond84

296 Posts.

25

15/07/18

23:46

Post #: 34357749
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Originally posted by madamswer ↑

"Normally I'm not concerned with share price falls - in fact I prefer the price of the stocks I'm interested in to be falling rather than rising, so I can buy them more cheaply. In OMN's case however, it makes me uncomfortable because they're still reliant on equity funding, and a low share price means more dilution to my holding when they raise capital. It's real value destruction wrought purely by a falling share price. I'd prefer management in this particular case to at least make a decent effort at getting the OMN story out there as much as possible in order to avoid a potential mispricing of their stock due to a lack of awareness of the company."

@vagabond,

I think your fears of dilution are a bit unfounded; at least, I think that if you want something to worry about, there are far greater things to worry about with OMN than being diluted.

The reason I say this is that, by the time any additional funding is required, namely in some 12 to 15 months' time, it should be quite evident whether or not OMN will have the makings of a real business. Which will be what informs whatever the share price will be at the time.

This is really a case of a binary outcome:

Either:

There is real evidence in 12 months' time that this is a real business, and is on track to generate hundreds of millions of dollars in Revenues and Profits. In which case the share price will be a great deal higher than it is today, thereby bring accommodative to an equity raising, which would presumably only need to be a modest one, anyway, if cash flows are already meaningful... so any dilution would be minimal. Besides, if it does prove to be all that it is cracked up to be, then it would be a highly bankable business, and commercial lenders would be falling over one another to extend generous debt terms to the business, meaning there would in all likelihood be no need to raise equity capital, anyway.

Or:

In the event that there is little evidence of any real Revenue traction in 12 months' time, the matter of additional funding will be totally moot, because it will be very difficult to raise capital for a business that is not a success, and even if they could drum up some interest for a capital raising, the share price will be at such a low level, it will make it prohibitively expensive to issue new stock.

So, either the thing succeeds, in which case dilution is a non-issue, or it fails in which case dilution doesn't matter anymore because we would have done our dough, anyway.

"I have to admit, I'm still not quite convinced by the OMN concept. I'm not sure having more data on shopping habits will translate into squeezing more sales out of consumers. And if OMN's services won't increase sales, it's of no use to their retailer customers. I bought into OMN originally as an asset play, drawn to it by its large discount to net cash and acquired software businesses. But if they manage to pull off significant product sales, I'd be happy to take that outcome too."

With respect, I think that viewing this as an asset play because of the cash is somewhat flawed, because - as discussed earlier on these threads - that cash is being consumed at quite a rate, to the extent that by not long after this time next year, it is possible (if they don't secure meaningful Revenues) that the cash balance will be less than the current market value of the company.

So, once again, an investment in OMN boils down to whether or not the company will be able to generate meaningful revenues from the products it has developed, and is developing.

And on that note, just to touch on the nature of the business model which I see as being decidedly different to your suggestion of squeezing more sales out of consumers.

PS. And the other thing that has some appeal to me is that, as an incoming shareholder today, I am not funding the development work from scratch.

Up until now, some US$200m has been spent on this business - almost triple its current market value. Of course, that US$200m might simply be dumb money, but it would be somewhat out-of-character for the people who were behind that spend, because they have done mostly a lot of very smart things over an extended period of time.

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@madamswer

Lots of good information to digest in your post.

Agree that the share price 12 months from now will most likely reflect the success OMN has. But it's still possible in my view for OMN to have had some degree of success, but not have the share price rise accordingly. The market has been known to undervalue securities, and sometimes it happens simply because the company is too obscure and not on the radar of most investors. It's better to market yourselves somewhat while you're still reliant on capital raisings and reduce this risk, in my view.

With respect, I think that viewing this as an asset play because of the cash is somewhat flawed, because - as discussed earlier on these threads - that cash is being consumed at quite a rate, to the extent that by not long after this time next year, it is possible (if they don't secure meaningful Revenues) that the cash balance will be less than the current market value of the company.

With respect, I think that viewing this as an asset play because of the cash is somewhat flawed, because - as discussed earlier on these threads - that cash is being consumed at quite a rate, to the extent that by not long after this time next year, it is possible (if they don't secure meaningful Revenues) that the cash balance will be less than the current market value of the company.

Expand

I admit it probably wasn't wise to buy OMN as an asset play. As you pointed out, the most likely scenario is that OMN's cash gets fully spent towards developing their software. However I still ask myself if the cash value could be released in other perhaps less likely scenarios. For example, if it becomes evident by the end of the year that the whole concept is unworkable for some reason (perhaps they fail to secure any more participants, and some existing participants leave the network) would the board start thinking about preserving shareholder funds and put the Onemarket project on ice? Could a Ron Brierley type corporate raider, lured by a large cash discount, launch a takeover bid for OMN and then seek to wind up the company to release its cash holdings? Could the Lowy's make an offer to privatise OMN at a price closer to cash backing?

I'm not an expert on takeovers or corporations law so I don't claim to know accurately the probabilities associated with corporate manoeuvres involving OMN. I would guess Unibail and Lowy's OMN stakes of around 10% each could make things difficult. But I feel like the collective probabilities of something happening on this front shouldn't be insignificant. If I'm misinformed on this matter, and I wouldn't be surprised if I am, I'm happy to hear why and learn from it.

OMN's success is not dependent on an increase in the size of the consumer spend pie; rather, it is a function of the degree to which OMN's products and services can demonstrate to the entities (individual retailers, chains, shopping centres, brand owners) that use those products and services, are able to gain a larger share of the existing pie. That, and being able to conduct their businesses more efficiently and with greater degree of control based on a fuller information set.

NB. Don't get me wrong; I am no cheerleader for this business. It is still unproven and a large element of the business involves creating a need for a service where that need currently doesn't appear to exist. But the thing that interests me is that the stock is not being priced for much in a way of success.

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Fair point about growing the overall pie. If OMN's services can help retailers win market share, I have no doubt OMN will prosper. I'm just sceptical of the idea that having more data on individual shoppers' habits will helps retailers win market share. I'm not too convinced about efficiency gains either. Having said that, the Lowy's seem to believe the idea is a goer, and I'm certainly not going to say I know retail better than them. So I could very well be wrong here.

Oh, and the thing that I completely forgot to mention is that, Section 4.9 ("Future Funding Arrangements") provides strong indication that any future capital needs are likely to be raised - in whatever form that takes (debt, equity or some sort of hybrid of the two) - not at the OMN Limited level, but in the 90%-owned OMN Delaware entity.

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True. But my concern is that the low share price could form an anchor around which OMN can raise capital overseas. My thinking is that any potential US investor looking to invest at the OM delaware level can say, "why should I pay $x for 10% of your business, when I'm being offered the same 10% for $ 1/2 x on the stock exchange?" It seems to me like the ASX listed share price will at influence at least partly any future capital raisings.

Anyway, this much I am certain of: OMN will be a learning experience for me one way or another by the time it's all over.

OMN Price at posting: $1.02 Sentiment: Hold Disclosure: Held
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