About: iSentia (ISD) is a media monitoring business that operates a Software-as-a-Service (SaaS) to corporations, agencies, industry bodies and governments. It allows those organisations to monitor and make informed business decisions based on the monitoring of mainstream and social media. iSentia operates across Australia, New Zealand and parts of Asia.

Why it is in the portfolio: In Australia and New Zealand, iSentia is the predominate player in the media monitoring space with the majority market share. Part of the reason for the weakness in iSentia’s share price over the past couple of years has that their market share has been challenged by a cheaper competitor, Meltwater. When ISD was originally added to the portfolios much of this had already been factored into the share price. Meltwater’s solution is a cheaper alternative but it is not a full service offering like iSentia’s, so as things currently stand, iSentia offers a premium product when compared to Meltwater. At the time of purchase, iSentia wasn’t trading at demanding multiples (around 15-17x forward years earnings) and a reasonably attractive gross dividend yield of 4-5%. While the business has had a challenging period, it still provides a high quality product and their major competitor has somewhat had the winds taken out of their sails with iSentia settling proceeds with Meltwater surrounding claims that Meltwater was utilising iSentia's intellectual property.

Fundamentals: Continuing share price weakness in 2018 means that iSentia trades on a forward price-to-earnings ratio of under 10x next year's consensus earnings with an estimated gross dividend yield of almost 8% with 50% pay-out ratio. If management can deliver reasonable earnings then ISentia will start to look very cheap. On that basis we think it is worth holding on to as it could move quite quickly if the earnings outlook starts to look quite solid.

What could go wrong: The company made a poor acquisition in King Content and has subsequently had to write-off the acquisition and is now aiming to exit the business. While the rest of the business remains sound, there is profound change going on in the media landscape which means that iSentia may struggle to remain relevant and therefore need to write down other parts of its business or it will need to innovate which may prove a drain on capital. iSentia relies on licencing for copyright of media, the cost of copyright licencing may increase in the future which is a risk to the business. The threat of competitors remains a key risk to the business.