InternetQ - a "stealth stock" discovered

InternetQ looks like one of AIM's best-kept secrets. The owner of mobile marketing platform Minimob and music streaming service Akazoo is growing revenue fast and first-half profit easily beat City forecasts. Prospects are exciting, too, yet the shares trade on modest single-digit earnings multiples. Priced sensibly, they could be worth twice as much.

Revenue grew by 53% to €65.7 million (£51.1 million) in the six months ended 30 June 2014, driving underlying pre-tax profit of €6 million, up 40%. Mobile marketing on behalf of mobile companies, games publishers and brands, currently the biggest sales generator, increased revenue by 49% to €51.5 million, but Akazoo is catching up fast.

Sales there surged by two-thirds to €14.2 million and launches in Thailand and Malaysia have gone well. Management told Interactive Investor that Indonesia is next, then probably Vietnam. But there's been a real uptick in demand from the US and other western markets, too, and InternetQ has already been picked to run the Orange Poland music service.

Akazoo, often compared with American high-flyer Spotify, is nudging one million subscribers, we hear, and revenue per user has risen by a third since January to $2.51 (£1.55/€1.99). Management has set a "mental benchmark" of $4-$5, which should grow as it hits wealthy markets in the west.

A conversion rate to premium subscriptions of 20-35% has already grabbed the attention of handset maker Sony, and a deal is in place with Samsung, too.

True, Akazoo made a half-year operating loss of €1.8 million, not helped by the impact of content costs on margins. But direct costs are expected to fall and the division should eventually generate cash profit margin of about 20%.

Minimob, however, is already making money - operating profit almost doubled to €6.3 million during the half, and adjusted cash profit hit €9.7 million, twice last year's contribution. Minimob now has over 250 million unique installations on mobile devices, and is growing by up to two million every day. "This network that InternetQ has developed over the past 15 years is essentially a large 'private network' that, using our technology, our clients can effectively advertise into," explains the firm.

"InternetQ offers lots of growth, at a very reasonable price," says Canaccord, which values the business at 510p per share. So why are they trading at only 232p? Well, they may be pricing in worries about possible competition from Apple and Google - something played down by sources - or it could be the fact that InternetQ is headquartered in Athens.

Either way, concerns like these seem wide of the mark, and a forward price/earnings (P/E) ratio of 9, dropping to only 7.5 for next year seems incredibly modest. As a marker, it's worth noting that IPO-hopeful Spotify, with 10 million paying subscribers, is valued at somewhere near $4 billion.

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.