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Destiny Media Technologies is a value buy that is growing and already profitable
Posted by: Gerry Wimmer
11/11/2018
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NEW COVERAGE – TOP IDEAS: New revenues from Destiny Media Technologies Inc.'s (TSXV: DSY) latest version of Play MPE, a SaaS service for securely distributing content in the music industry could provide big returns for small cap investors.



Fiscal 2017 was a year of significant change for Destiny Media Technologies Inc. (TSXV: DSY – C$0.215). Fred Vandenberg was appointed as the new CEO (formally the CFO) and, shortly after, a new strategy was undertaken to refocus the Company on its core Play MPE business. In fiscal 2018, the benefits of the comprehensive changes made are starting to be realized, which is good news for shareholders.

Destiny Media Technologies is the provider of Play MPE, a cloud-based enterprise Software-as-a-Service (SaaS) used by the recording industry for promoting and distributing broadcast-quality audio, video, images, promotional information and other digital content securely through the internet. All exported songs are marked in real time with Destiny’s watermark technology, which has received numerous US and global patents.

Destiny Media describes its Play MPE technology as a software system for the music industry to transfer pre-release broadcast-quality music, radio shows and music videos to trusted recipients such as radio stations, media reviewers, VIPs, DJs, film and TV personnel, sports stadiums and retailers. The Company says that record companies around the world, including all three major labels (Universal Music Group, Warner Music Group and Sony Music Entertainment), are customers who are regularly using Play MPE to distribute and promote their content.

Though Play MPE is already the dominant music delivery solution in select formats and regions, the Company has decided to reinvest in this technology. It began with the re-engineering to a cloud-based architecture, which laid the groundwork to improve the software’s reliability and performance. This allowed for the rollout of a major upgrade: the release of Play MPE Version 8 in July of 2018. Destiny Media claims that the new product's universal access and ease of use features are significant improvements to the Play MPE technology.

Destiny Media believes that with release of Play MPE Version 8, there is significant opportunity to grow the business by engaging current and past customers worldwide. Today the competition is only made up of many small localized competitors who the Company believes can be displaced with advantages of a superior software product like Version 8. To strengthen its competitive advantage and market size, the Management sees many opportunities to increase its offering by adding complementary products to the current Play MPE platform.

Destiny Media sees significant market growth potential for its Play MPE business. PwC's 2017 Global Entertainment and Media Outlook forecasts that the global music industry will grow from $17.2 billion in 2016 to $22.6 billion in 2021, driven primarily by increases in digital subscription sales. The Company says this growth is driving increased investment in promotion and distribution workflows by global music labels as the role of radio and key influencers directly impacts revenue generation from these growing services.

Since Destiny Media’s Management decided to refocus on its core Play MPE business, the financials results are improving. Revenues reported show 10 straight quarters of growth. Over the last five quarters, the Company generated both positive adjusted EBITDA and net income. For fiscal 2018 the 9-month period ending May 31, Destiny Media reported revenues of US$2.71 million, adjusted EBITDA of US$607 thousand (22% EBITDA margin), net income of US$484 thousand with earnings of US $0.01 per share. Cash flow from operations generated for this period was over US $880 thousand. In addition to the earnings, the Company also maintains a strong balance sheet. As of May 31, 2018 Destiny Media had over US$2 million in cash on hand and no debt, with a current ratio of 6.4 to 1. The Company reports all of its financial results in USD currency.

Investorfile has initiated coverage on Destiny Media Technologies and has appointed the stock to our list of Top Ideas as a small cap value stock investment opportunity. We acknowledge that the Company is still quite small but its strategy to reinvest in its Play MPE business, recent financial results and growth outlook, combined with current valuation of the stock, make it a compelling investment opportunity for value-driven growth investors.

Based on our internal estimate for fiscal 2018 (actual results will be reported soon), Destiny Media’s shares currently trade on a 12-month trailing valuation at approximately 9 times Enterprise Value (EV) to adjusted EBITDA. This is not an unreasonable valuation. But when we look forward 12 to 24 months, the current valuation of this stock looks very attractive.

We forecast that at some point during fiscal 2020, Destiny Media will exceed a quarterly revenue run rate of US $1.6 million (converted to Canadian currency equals C$2 million). Based on this revenue base the Company could earn adjusted EBITDA margins of 25%, which equates to C$500 thousand quarterly or C$2 million of adjusted EBITDA over a 12-month period. Cash holdings could build to over C$4 million with no debt.

Under the above scenario, we recommend that small cap value investors should accumulate shares of Destiny Media Technologies up to a price of C$0.35 from its current trading level of around C$0.22. If we a assume an investor has an average accumulated cost base of just under C$0.30, then this investment implies an entry valuation of about six times EV/adjusted EBITDA based on our forecast. This valuation level allows for ample capital appreciation potential over time.

Destiny Media Technologies has approximately 55 million shares outstanding. Last reported, Management and Directors own a combined 7.2% of the outstanding shares.

In addition to its Canadian stock listing (TSXV: DSY), the Company is also a reporting issuer in the United States. In the USA, Destiny Media Technologies' share price is quoted in USD currency on the OTCQX, under the trading symbol DSNY.

Of note: On September 5, 2017, the Company’s former President and Chief Executive Officer filed a Notice of Civil Claim in the Supreme Court of British Columbia against the Company, primarily claiming wrongful dismissal. Company Management believes all claims are without merit and it is unlikely that the outcome of this matter will have an adverse impact on its results of operations, cash flows and financial condition. The Company’s former President and Chief Executive Officer last reported owning about 20% of the Destiny Media Technologies’ outstanding shares. In a recent public filing the Company was unable to confirm this share ownership stake.

Destiny Media Technologies website: www.dsny.com

Author ownership disclosure: Yes: TSXV: DSY


Read Disclaimer:

This article is for informational purposes only. This article is based on the author's independent analysis and judgment and does not guarantee the information's accuracy or completeness. The information contained in this article is subject to change without notice, and the author assumes no responsibility to update the information contained in this article. The information contained within this article should not be construed as offering of investment advice. Those seeking direct investment advice, should consult a qualified, registered, investment professional. This is not a direct or implied solicitation to buy or sell securities. Readers are advised to conduct their own due diligence prior to considering buying or selling any stock.

Investorfile.com is not engaged in an investor relations agreement with Destiny Media Technologies Inc. nor has it received any compensation from Destiny Media Technologies Inc. for the preparation or distribution of this article.

The author of this article has acquired and may trade shares of Destiny Media Technologies Inc. through open market transactions and for investment purposes only.

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Hi Gerry, Your philosophy is focused on principles that have been shown to produce above average results over time and your record has clearly proven that. Congratulations on a great blog and thank you for the hard work that you do in sharing and updating your ideas; it is much appreciated.