Monitise rebuilds confidence

Mobile payments expert Monitise has had its best day in a long while following a global digital commerce and resourcing alliance with IBM. Monitise shares rocketed as much as 17% and this expanded tie-up with the American technology goliath could at least underpin aggressive revenue growth targets for the next few years, which even now are not reflected in the share price.

Of course, there's a very good reason for that. Monitise has slashed growth forecasts twice already this year - a decision to negotiate a small number of bigger contracts on a new longer-term subscription-based model is to blame - and decent profits are years away.

We asked last month whether key technical support at 40p would hold. Thankfully, it has, and this new deal, which builds on an initial agreement signed in July, certainly looks interesting. Monitise, which has tie-ups with both Mastercard and Visa, will transfer over 20% of its staff from the UK development and integration business to IBM, which will then provide services back to Monitise.

"Monitise's technology will be enabled, hosted and sold as an IBM cloud-delivered solution worldwide in the business-to-business space," said the UK firm. That will underpin targets, first flagged in March, for 200 million users using Mobile Money products and services developed by Monitise by the end of June 2018, plus a cash profit margin of at least 30%. It should also turn a profit in 2016.

"The overall partnership with IBM provides Monitise with access to IBM technology and the use of IBM technology in Monitise's products provides further incentives for IBM to sell Monitise products," explains broker Canaccord Genuity.

"We expect the partnership to become a significant growth driver for Monitise. The market is not recognising Monitise's growth potential."

It’s obvious now that anything Monitise does to make aggressive top-line growth forecasts - an average of 52% over the next four years, according to Canaccord - appear more achievable will be well-received in the City. The IBM deal certainly makes another revenue warning less likely, especially if, as expected, it generates extra lucrative contracts. And, crucially, a floor for the share price (47.5p) appears to have been established.

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