Business Description and Background:

Plexure Group was formerly known as VMob Group Limited. In 2012, Scott Bradley, the former CEO, took over VMob Group when it had nearly $0 in revenue. He shifted VMob towards mobile loyalty application development at that time. In 2016, VMob Group was renamed Plexure Group and Phil Norman, the founding Chairman of Xero, was brought on to be PLX’s Chairman. By mid-2017, PLX’s auditor had concerns of whether PLX could continue as a going-concern. In September 2017, Scott Bradley stepped down after taking PLX from $0 to $7.3 million in revenue in 5 years, but with no profits to show for it. He was replaced by Craig Herbeson, a former executive at Bank of New Zealand. Scott Bradley remains the single largest shareholder, though he is no longer a director or executive at PLX.

Plexure Group is a third-party mobile application developer (think contract developer-like business model). They own the code and license its usage to customers. PLX focuses on loyalty or rewards applications for quick-service restaurants (“QSR”), retailers, convenience stores (“c-store”), and fuel retailers. As of this post, PLX’s largest clients are McDonalds (MCD), 7-11, and Ikea.

The applications are built on a nebulous, Plexure Platform, which is a fancy way of saying that PLX integrates their country-specific or region-specific apps so that they can be more easily customized by for local menus, deals, product offerings, ect. Essentially, PLX offers enterprise UI apps and specializes in organizing retailer data in ways that allow for high-level customization. An example of the customization that PLX provides at improved ease is regional or location-specific coupons, customer-specific coupons, push notifications based on location, and so on. That’s the value-add of PLX’s business, as I understand it. It’s not impossible to replicate PLX’s Platform, but it seems to me it would cost more than what it cost PLX to do.

PLX makes money by charging recurring license and support fees (borrow PLX’s code and pay for on-going and timely help in customizing features of the code). In addition, PLX has frequently earned deployment and integration and consulting fees on a one-time basis. This revenue comes from each additional region that MCD or 7-11 or Ikea adds to the PLX platform. PLX is likely to collect integration and consulting fees at or above current levels for the foreseeable future. MCD has restaurants in 48 countries connected to PLX’s platform, with Japan and Italy being the largest markets. MCD’s UK, US, and developed EU restaurants will be the big prize going forward for PLX. PLX’s Ikea relationship appears to be developing faster than 7-11’s (mainly Australia, at present) but both are a fraction of the MCD relationship.

Financial History (as reported, unless otherwise noted):

Note that the present USD:NZD ratio is 1.48. I use NZD and $NZ interchangeably.

Valuation Process:

PLX is valued as a going-concern since it is now profitable and assumed to still be in the future. Since it is a going-concern, I will not consider book value to be a meaningful valuation technique. PLX’s prior financial results are not expected to be indicative of future results, thus a DCF was used to value the company. Below is my summary of PLX’s enterprise value, as of this post, and the basic DCF used.

The below working capital requirement calculator was used. Note that this is to estimate the short-term and long-term working capital needs.

In this post and going forward, values highlighted yellow are either estimates or noteworthy. In the above, yellow highlighting is used to point to the values within the sensitivity table that were explicitly used in the DCF (for ease of reference).

Other Events Affecting Valuation:

On April 2, 2019, MCD purchased a 9.9% stake in PLX at $NZ 0.39 per share, or an enterprise value (“EV”) of $NZ 41.9 million.

McDonald’s will buy 13.8 million shares of Plexure, a New Zealand-based company, for about $5 million, according to reports. McDonald’s last week said it would acquire Dynamic Yield, the Israeli digital startup, to improve the customer experience, particularly during the drive-thru. Plexure already provides a global app for McDonald’s in 48 countries outside the U.S. and other markets, including Italy and Japan. The app provides discount vouchers and loyalty offers to McDonald’s customers. The deal will give McDonald’s “enhanced access to Plexure’s technology in the quick service restaurant space, including access to greater back-end and front-end features, customer functionality and customer targeting, among others,” McDonald’s said in a statement. “Across all of our markets, we’re using technology to elevate and transform the McDonald’s customer experience,” said Steve Easterbrook, McDonald’s president and CEO. “Our mobile apps play a key role in our digital acceleration, allowing customers to interact with us on their terms in a personal, customized way. This investment is a testament to our belief in Plexure’s ability to deliver strong results for our business as well as the talent and technology they’ve cultivated.”

At purchase, PLX’s EV summary looked like the below:

Valuation Conclusion:

I believe PLX is reasonably worth $NZ 0.90 per share today (approximately 73% upside), with an upper bound valuation of roughly $NZ 2.00 per share. The upper bound would only be feasible if PLX can continue to generate increasing levels of free cash flow (“FCF”) from the MCD relationship and others.

The value of $NZ 0.90/share does not directly consider the strategic or control value that MCD may place on PLX. I’m not sure how to value PLX’s IP but I can imagine MCD buying PLX for meaningfully more than $NZ 0.90/share. Whether that makes sense or not will probably depend on MCD’s deployment of PLX’s Platform in the US.