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Should You Buy Blinkx Plc, Optimal Payments Plc Or EMIS Group Plc?

To say that investors in online video platform Blinkx (LSE: BLNX) haven’t had much to cheer about is something of an understatement. The shares — recently trading at 23.5p — are down almost 90% from their November 2013 peak, valuing the AIM-listed firm at £95m today.

The latest bad news for shareholders came in a trading update last month for the company’s half-year ending 30 September. Blinkx said it expects to post revenue of $85-$95m for the period. This compares with revenue of $106m in H1 last year and $112m in H1 the year before. The problem is an industry shift away from desktop and “evolving standards” (basically, a euphemism for advertisers demanding greater verification and filtering to ensure they are reaching their target audiences).

As well as the pressures on revenues, there is a double whammy in that the programmatic trading and mobile usage, to which the industry is migrating from desktop, is lower margin. Blinkx expects to make a $5-$8m EBITDA loss (earnings before interest, tax, depreciation and amortisation) for the current half-year, compared with a $1m profit in H1 last year and an $18m profit in H1 the year before.

One positive is that Blinkx has plenty of cash: it has guided on $82-$85m for the 30 September half-year end — although this is a hefty drop on the $115m of 12 months ago. Some see value in the stock at current levels. For example, Blinkx notified the market today that hedgefund Tosca has just increased its stake in the company to over 20%.

Can Blinkx turn its business around and how profitable might it be in the new industry environment? We won’t know the answer for some time. As such, for me, this is a stock to watch rather than buy.

Optimal Payments

In contrast to Blinkx, online payments group Optimal Payments (LSE: OPAY) is a stock whose currency is rising. After a recent transformational acquisition of rival Skrill, the AIM-listed group is valued at £1.5bn (at a recent share price of 313p), and intends to move to London’s main market, where its size would make it eligible for inclusion in the FTSE 250. Optimal Payments today announced an EGM on 28 September for shareholders to vote on a new memorandum and articles of association and a change of the company’s name to Paysafe Group.

Looking ahead to next year, analyst earnings forecasts for the enlarged group give a price-to-earnings (P/E) ratio of 18, which is about average for a FTSE 250 firm. With earnings growth forecast to be 18%, the P/E-to-earnings growth (PEG) ratio is bang on the fair value marker of 1.

I have a couple of concerns about Optimal that are buried in last year’s annual report: namely, “approximately 37%” of revenue came “from one customer”, and the group has “a material indirect dependency on the Chinese online gambling market”. These represent not insignificant risks. Anyone who recalls Optimal in its previous guises will know that the company was hammered by regulation of the US online gambling market a decade ago.

EMIS Group

EMIS Group — valued at £620m (at a recent share price of 986p) — is a “blue-chip” AIM company, but nowhere near as much talked about on private investor bulletin boards as Blinkx and Optimal. EMIS describes itself as “the UK leader in connected healthcare software and services”. It helps clinicians share vital information, and its solutions are used across every major part of the UK healthcare network. There is good momentum in the business, because the NHS is desperate to cut costs and improve efficiency.

In its half-year results announced today, EMIS reported a 17% rise in revenue to £78m, of which 78% was recurring revenue. Earnings were up 18% and the Board increased the interim dividend by 15%. If earnings growth were to continue at the same rate, the current-year P/E would be 21, falling to 18 next year. The 2016 P/E and PEG, then, come out identical to those of Optimal Payments.

EMIS has “some concentration of risk, as the Group trades extensively with various parties within the NHS”, but I would suggest this risk is significantly lower than Optimal’s single customer and China risks. As such, EMIS looks buyable to me, although I would be hoping for a bit of a pullback after a 5% rise in the shares on today’s results.

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