With the shares plunging 10% today on release of the half-year results report, Israel-based Tremor International (LSE: TRMR), which was formerly Taptica International (LSE: TAP), has a low-looking valuation. Is it too cheap to ignore?
The company earns its living as an online marketing specialist providing targeted advertising for brands through video and other channels – all that stuff we want to ad-block to stop it ruining our online days, I guess!
Cheap as chips
But the valuation really does look cheap. With the share price at 130p as I write, the forward-looking earnings multiple for 2020 sits close to just 3.5 – I think it’s fair to say that the company is out of favour with investors and has been for some time. It seems that the recent change of name from Taptica International hasn’t helped sentiment.
And that’s a big problem because investor sentiment is likely to work against any investment we make in the company despite its apparent fundamentals. One of the challenges is that investors seem to find it hard to trust firms based abroad in places such as Israel.
Yet, I think it’s wise to be cautious. At the end of 2018, the former chief executive resigned after allegations of fraud at the previous company he headed. There’s no suggestion that Tremor has done anything wrong, but at the very least we need to question the firm’s recruitment procedures.
Meanwhile, today’s report reveals to us a flat outcome on revenue compared to the equivalent period a year ago and a reduction in net cash inflow of just over 8%. But that outcome masks a decline in a major part of the business due to a balancing three-month contribution from RhythmOne, which the company acquired in April.
In fairness, the directors reckon Tremor is “well-positioned” to deliver a stronger second half. But this morning’s further plunge in the share price suggests investors have been voting with their feet. On balance, I’m inclined to be one of them because there are so many other opportunities available on the stock market, so why take on the uncertainty here?
Getting exposure to the small-cap sector
In theory, I like the idea of investing in companies with smaller market capitalisations because they have room to grow and are sometimes capable of delivering stunning returns to their shareholders. But there’s no doubt that the small-cap arena is also packed with risk and we should choose our stocks carefully.
However, sometimes it’s easier to get exposure to the small-cap universe of shares by investing in low-cost index tracker funds and I like the look of the Vanguard Global Small-Cap Index Fund – Accumulation. The fund aims for long-term growth of capital by tracking the performance of a market-capitalisation-weighted index of small-cap companies in developed countries around the world.
There are holdings of around 4,386 companies in the fund, which gives us comprehensive diversification, and the ongoing charge is low at just 0.38%. I think tracking the global small-cap index is a great way to get exposure to smaller firms within a portfolio and I’d rather buy into the fund than invest in Tremor International shares.
