Monitise backed by City big-hitter

Monitise shares plunged last week when Visa Inc said it was selling a 5.5% stake in the mobile payments expert. They hit 26.25p at one point, but an army of supporters both inside and outside the City has been mobilised and the price is back up to 35p.

UBS has joined the fan club, initiating coverage with a bullish take on prospects:

"Earlier this year, Monitise announced a change in its business model towards a subscription model rather than up-front licensing, with the aim of reducing barriers and accelerating adoption of its platform. This transition limits short-term growth, but will likely increase long-term value. We believe Monitise is well positioned as a partner to banks as they look to serve the mobile channel, and initiate coverage with a Buy rating.

"Monitise remains loss-making, so any investment remains high risk - especially as we do not expect the business to turn cash profitable until full year 2017. We believe Monitise offers an attractive opportunity to access the theme of mobile banking, and that the partnerships the company has - such as the one with IBM - justify a Buy rating. Execution on growth is critical, but we see a fair value of 80p based on a DCF (discounted cash flow) model."

Monitise has certainly had some success in attracting big name customers as it targets 200 million registered users by 2018. It has 30 million already and a new deal with Santander, which has more than 100 million customer accounts, could be big business. It will be a few years before the company turns a profit, but growth should be rapid when it does.

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As we've written before, the Monitise story remains intact and the potential is exciting, so the shares look good value long-term. However, in a "quiet period" post results, it will need new contracts and further user growth to generate fresh significant momentum.

It's also worth remembering that after plunging through previous technical support at 40p, that level now becomes resistance and it will require a significant catalyst to get the share price back above 40p. Visa Inc's stake sale shock also creates a substantial stock overhang, which could limit the size of any rally.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.