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Should You Bail Out Of Monitise Plc?

Shares in mobile money company Monitise (LSE: MONI) have slumped today, on heavy volume, although the reason for the decline is currently unclear. 

At time of writing Monitise’s shares have fallen nearly 17%, on four times the average daily volume, which usually indicates that bad news is imminent. 

However, some sources have stated that Monitise is falling in sympathy with Temenos Group AG, the market leading provider of mission-critical software to financial institutions globally. Temenos’ shares, which are listed in Switzerland, fell more than 20% today after the company announced weaker than expected fourth quarter licence sales.

It seems as if the market believes that Temenos’ lower sales figures, are an indication that Monitise’s licence revenue will also come in lower than expected. 

No reason to sell 

Until there’s a valid reason to explain Monitise’s fall today, there’s no reason to turn your back on the company. Indeed, if Monitise is falling in sympathy with Temenos, then there’s no reason to be overly concerned.

Monitise’s business has many similarities to that of Temenos, but the two companies are not one and the same. 

As I’ve mentioned before, 2015 will be a pivotal year for Monitise as 2014 was somewhat of a transformational year for the company. The company signed plenty of deals during 2014, which should support growth over the long-term. These deals include the joint-venture with blue-chip giant IBM, as well as several smaller deals with the likes of VodafoneTelefonicaSantander and MasterCard

That being said, Monitise abused the trust of its investors during 2014 by missing targets and asking for more cash to fund operations. Management need to regain investors trust during 2015.

More importantly, Monitise needs to show that it can stand on its own two feet this year. In particular, the company needs to be able to sustain itself without constantly asking the market, and its larger investors, for more cash.

The most recent cash call saw Monitise conduct a placing to raise £49.2m in aggregate. These fund were raised with the promise that the company would not ask investors for additional cash to fund operations until 2016.

The funds were supposed to provide Monitise with enough liquidity to keep it going until 2016, when management expects the company to report its first profit on an earnings before interest tax amortisation and depreciation, or EBITDA basis.

Development takes time 

Some investors may be frustrated by Monitise’s slow progress and lack of news flow from the company. But building a global payment network takes time. Visa’s global presence was developed over several decades and the company had the financial fire power of Bank of America behind it. 

Monitise does have potential, so if you’re willing to take the risk, the company could be a good long-term bet.

Nevertheless, I strongly recommend that you do your own research before making any trading decision and Monitise may not fit your own personal risk profile.  To help you assess the company, our top analysts have put together this new report from The Motley Fool.  

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK owns shares of Monitise. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.