Proxama - Tapping into NFC

http://www.proxama.com/

Proxama Logo

I came across Proxama (LSE:PROX) when looking at a company with a similar business model, 2Ergo (LSE:RGO). Proxama listed on AIM in August when Longships undertook a reverse takeover. This is when a takeover involves a private company gains a  listing on an exchange through a takeover with an already listed public company. The company is involved in the mobile industry through the development of Near Field Communication (NFC) solutions for businesses. The company's share price performance has been lacklustre and that is partly down to the high rating upon listing. The share price currently stands at its low of 4.625p despite some positive announcements over the period. Admittedly, there is good reason for that. At 4.625p, Proxama is capitalised at £21.52m through having 465.2m shares in issue.


Given the illiquidity of Longships, there are not a lot of technical aspects to point out especially since Proxama has only been listed on AIM for a few months. Rather than trying to pick out tenuous points in respect of the technicals, I'll leave it at that. Since the reverse takeover (RTO) there have been a couple of Holdings RNS'. Both saw institutions' percentage interests fall as a result of the RTO as it involved dilution.

Proxama is run by its CEO and Founder, Neil Garner. The company has actually be around for quite a few years, although the technology its involved in (NFC) is still very much under deployment. As is in the name, near field communication involves a 'near field' involves a communication device (a mobile) and a NFC tap point. When the mobile is placed near the tap point, the two interact and data is shared. The concept is often related to loyalty schemes or advertising campaigns.

For example, at some bus shelter there are advertising boards on one side. They are in the form of paper screens. Some NFC tap points have already been deployed at bus shelters. The NFC tap point is a small black device that is attached to the shelter. Upon moving a mobile to the tap point, in-store unique discount vouchers (for example) are transferred onto the device's interface, where you can browse through them. Those discount vouchers can be saved onto a dedicated app. When trying to redeem the voucher, you open up the voucher and present it to a till assistant who will scan the code. In essence, the NFC system eliminates the need to carry paper vouchers in a wallet and also helps companies interact with their customers. It doesn't have to be a voucher either - it could be a transaction port whereby the user could purchase goods among other uses.

Whilst NFC is very low power, the technology does have its inherent limitations. By definition, the technology is near field meaning that the mobile can only connect with the tap point when the two are not far apart (literally a few centimetres) and that can sometimes be inhibited by phone cases interfering with the connection. Furthermore, concerns remain over how secure the tap points are - indeed there are risks such as skimming of personal details that could take place should the tap point security be compromised. Those concerns are likely to be overcome as the technology expands - at the moment the phone requires a 'secure element' which is either a NFC sim-card from the mobile operator, a micro-sd card from your bank, or a 'pre-embedded' element.

Regardless, the applications for the technology are huge, with sectors looking to use it including Banking and Retail. Yet the technology is not brand new. It has been around for many years, but has failed to take off due to issues over security and low implementation - that means that it takes years for the system to become adopted. An increasing number of smartphones/mobiles are now capable of hosting NFC technology as it has been adopted by Android. However, it is definitely the case that NFC usage is not widespread and that is in large down to Apple refusing to integrate the technology into their iPhones and a lack of awareness. In fact, Apple have adopted a different technology and have created their own apps to cater for the gap. Due to Apple's presence in developed economies, that's bad news for NFC and will reduce the attraction of the technology since they don't seem to have any real intention to adopt it. Even without Apple though, other companies are pushing for the technology to succeed. That list includes Google. Therefore the potential of NFC and the companies involved in rolling it out looks promising.

A snippet of Proxama's operations is available on their website. The company "has a long and respected heritage in NFC:
- In partnership with MasterCard, Proxama launched the first prepaid mobile contactless payment service
 - Proxama’s Mobile Reference Kit is being used by card issuers and major brands to help ensure they’re at the forefront of mobile contactless payments
 - Proxama’s NFC mobile wallet technology, TapTransact®, is being deployed by some of the largest financial institutions in the world
 - Proxama are proud to be a key partner of Trustonic - securing next generation m-commerce"


Proxama has 6 main products/services that have been used for clients such as Orange, ARM Holdings, Nokia and Diageo:
- CardGateway = Allows card issuers to establish their Mastercards or Visa Cards onto a mobile platform
- CardContainer = Contactless payments, ticketing and loyalty for a mobile wallet
- TrustZone = For enabling secure data entry for m-commerce
- TagCenter = To make existing apps NFC enabled
- TapPoint = Manage mobile marketing campaigns, enable signage with NFC, manage Apps on consumers’ phones and measure results
- TagManager = Management App linking with TapPoint to programme and Geo-tag NFC-enabled products and signage

The company has the backing of some major players and has a number of impressive connections, from MasterCard as noted above, to Barclays. More recently, Proxama announced a few interesting collaborations. In late September the company agreed to a deal with Posterscope - the 3-year agreement involves Proxama's TapPoint platform and involves PosterScope's clients trialling in-store promotions. Proxama derives revenue from the deal on a 'Cost Per Tap' basis. In other words, when a customer taps onto the NFC port, Proxama will receive a small amount of money. The benefit of this is that revenue is generated regardless of whether the offer is exercised, but initially it can be minimal until uptake rises significantly.


In October Proxama unveiled "that the Company will work with Isis, the mobile commerce joint venture created by AT&T Mobility, T-Mobile USA and Verizon Wireless, to develop the Isis Mobile Wallet® application for NFC-enabled devices using the BlackBerry 10 operating system platform." Again, this is an important step and it highlights Proxama's strong focus on NFC technology. However, in my opinion the most important announcement was in late October. Proxama had been chosen as CBS Outdoor's NFC partner. Particularly those who travel on public transport will be familiar of CBS and the sheer number of advertising boards they control in places such as train stations. By the end of 2014 CBS will have enabled 5,000 NFC media assets (such as advert boards) on the London Underground and 2,000 elsewhere in the UK at National Rail stations. Further roll outs are noted to take place across Europe during 2014 and beyond. Revenues will once again be generated on a 'Cost Per Tap' basis and through initial deployment and maintenance fees. The agreement follows on from a successful deployment in Westfield in September.

CEO Neil Garner commented: "We are delighted to be continuing our relationship with CBS Outdoor, a leading player in its field. This agreement sends a clear message that NFC is here and not just for payments. It can be used by advertisers as a tool for marketing, brand engagement and loyalty."

I have to admit that I do like the outlook for NFC and believe it's odds on to take hold, even if it it takes a lot longer than many expected, to take hold. The problem I have with Proxama (at the moment) can be seen in their 2013 Interim Results (Figures valid of 30/06/13).
- Revenues of £344,344 vs. £808,911 in 2012
- Operating Loss of £1.35m vs. 582k in 2012
- Cash and Equivalents of £54,719
- Net Payables of £212,000
- Total (current and non-current) Borrowings of £490,000
Therein lies the issue and it is of no surprise that the market did not react to the fundamental news, and the share price is down significantly since admission. The company even spelt the situation out: "As stated in the company's AIM admission document, we plan to raise additional funds through a placing of shares in the next few months to execute our global ambitions in this very exciting growth market."
mjtmail (tiggy) on flickr

That is the worry that has been keeping the shares from reacting positively. Purchasing shares now and before has meant that you are buying into a placing, buying into dilution and a likely share price fall. Doing so would be irrational, especially since the placing is highly likely to attract a discount given the state of revenues. That sole point has put me off Proxama. It's OK for a blue sky stock to have a premium rating, but at the moment, the rating seems too generous given the financial state of Proxama. Assume they want to raise £5m gross and they can get that away at 4p (which is not exactly a given). Also assume net proceeds of £4.75m. That dilution would require the placing of nearly 119m shares or roughly 25% dilution. That is a pretty significant deterrent.

Unfortunately, the risk of dilution means that Proxama is currently not only highly risky, but almost uninvestable in my opinion. As I said, you are effectively buying into a placing which will almost certainly be done at a lower share price which I reckon could be at 4p or lower given that institutions would want a reasonable discount. A silver lining would be if they could get a strategic investor to stump up the cash, but that is just speculative and not something that you can base any real decision upon hence it does not affect the risk profile. The technical position is also weak and indicates that the market is unwilling to back the company prior to a placing. The products themselves are attractive and ultimately the uses of NFC are only going to increase. NFC is still gaining traction, but with the backing of industry majors the outlook is positive. Proxama has a strong product base and client base - its financial base is not (yet). No Rating.

5 comments:

  1. Spot on. Placing is a drag

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  2. Strange for a company to publicly announce a placing way before it has even happened. Must be a big one!

    CraigJ

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  3. It is odd that Apple are unwilling to take up NFC. Id say the reason for that is because it could damage them and their competitiveness so are trying to maintain their control

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  4. 2.5p placing is revealed. Would you buy in now or wait for the extra shares in market to clear?

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  5. I'd be inclined to say most of the overhang had actually cleared - there were some large trades that went through on the day of the placing, as institutions looked to swipe a quick profit.

    However, shares rarely enter uptrends after such a drop, in fact they usually enter downtrends, so I will wait to see if that ensues. If it does, they typically last anywhere between 2 weeks and 2 months. Buying near the end of that usually makes more sense.

    El1te

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