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MGM WIRELESS (MWR)

UPDATE

MGM Wireless launches a new app for schools and parents

DIRECTORS

Mark Fortunatow, Executive Chairman Mark Hurd, Executive Director Shaun Collopy, Non-Executive Director

KEY POINTS
 MGM Wireless launches MGM PinPoint™, a world leading app enabling schools and parents to locate children who are missing from school. Global PCT patent application filed Primary empathise on children safety to drive demand. Will boost revenue yield per school and is potentially a major contributor to revenue.

MARKET DATA

ASX Code: Current Price 52 week Share Price Range: Market Capitalisation: Economic Value: Shares on Issue: Unlisted Options:

MWR $0.86 $0.32 - $0.89 $7.0 million $6.9 million 8.1 million 0.65 million

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CAPITAL STRUCTURE

INVESTMENT PROPOSITION
Over the past two years, MGM Wireless has demonstrated that its business model is sustainably profitable, underpinned by a high proportion of recurring revenue, and has positioned its itself to drive an acceleration in its growth path. The company’s growth over the next few years will be sourced from continued building of market penetration in the core schools and child care centre market, software upgrades and extension business from the existing client base, SMS traffic growth and from new products. The company’s immediate priority is to build sales momentum for its expanding product offering. This will be at the expense of profit growth in the current year but is expected to lead to accelerated growth in FY 2014 and FY 2015. Further, the possibility of the company paying a dividend within the forecast timeframe will boost interest in the stock.

FINANCIAL SUMMARY
$mill Operating Revenue EBITDA Net Profit Earnings /Share (c) Div / Share (c) PER (X) EV/EBITDA (X) Dividend Yield (%) 2011-12 2012-13 (A) (E) 2,605 2,900 859 1,000 603 ~600 7.5 0 11.5 8.0 n.a 7.4 1.0 11.6 6.9 1.2

MAJOR SHAREHOLDERS
Fortunatow Family Mark Hurd

16.8% 6.7%

SENIOR ANALYST Michael Gordon (03) 9607 1371 April 2013
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Event
MGM Wireless has launched a new app, MGM PinPoint™, to aid schools and parents in managing student safety, attendance and welfare. MGM Pinpoint™ links school’s student attendance records to smartphones in a world-first service that identifies and locates missing or truant students. The service is initiated automatically by a school’s roll-marking system if a student is missing and no explanation has been provided from home, linking the parent’s phone to an app preinstalled on the student’s phone. MGM PinPoint™ is unique in being able to interrogate a school’s student attendance records and other databases to identify students who are unexplainably absent, match them to parent records and then, together with MGM’s messageyou service automatically text message the parent advising that his or her child has not arrived at school. The SMS message includes a PIN-protected link that enables parents to immediately locate their children on Google Maps. Parents can also use Google’s Street View feature to see the student’s location in 360-degree street level imagery. Schools will also be able to view the location of missing students, individually or in aggregate on Google Maps, and again use Google Street View to explore their location in 360-degree imagery. Global PCT patent applications for this technology have been lodged by MGM Wireless. MGM PinPoint™ is a premium add-on service for schools but will be at no cost to all parents with children in schools using MGM Wireless’ messageyou service when the service goes live on 3 June 2013.

Analysis and Comment
MGM Wireless spends between 25% and 30% of revenue on product development and innovation with the core objectives being the continuous improvement in the value proposition for customers and to maintain and extend the technical lead over potential competitors and other threats. The expected financial outcomes are accelerated revenue growth and margin expansion. The launch of MGM PinPoint™ follows the release about 18 months ago of Rollmarker and is another revenue stream with the potential to markedly increase the revenue yield per school. Whilst MGM PinPoint™ is a major technical breakthrough, by integrating multiple databases and coupling the information with GPS data and Google Maps (for which it has applied for a patent) it fills a need in managing children’s safety and represents a major technical advance in meeting that responsibility. Merely having the technical capability could be sufficient to drive sales. The launch generated widespread national television, radio and print media coverage (and was picked up by the media in Germany) resulting in considerable interest and enquiry from schools and parents. We expect that it will be a powerful lead product for schools not currently customers of MGM. We understand that pricing strategies are still being developed, however, we would expect that the annual cost will be around $3 - $4 per student. Given a reasonable level of take-up by existing customers, MGM PinPoint™ has the potential to be a major revenue generator. The most significant risk for the company with a product such as MGM PinPoint™ is the issue of privacy and it is likely that some debate on the subject will emerge. To mitigate this risk, the company is focusing on the safety issues associated with an unexplained absence of a child from school as well as a limiting the functionality of the

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service to school hours. Further, parents will only be able to locate their children in response to a message received from their school advising that they are absent. Over the next year or so more innovative products will be released. Rollmarker led the way with the use of the cloud and enabling mobility whilst MGM PinPoint™ introduced location identification. Greater use of these functions and high levels of integration of these products is likely to feature in new products. MGM PinPoint™ should be a significant contributor to revenue growth in FY2014 and whilst it is unclear how rapidly the product will be taken up by schools we estimate that a modest penetration of the customer base could boost revenue by about 5% to in FY 2014.Business Overview MGM Wireless has developed a range of products that empower schools to effectively communicate to and engage with parents and caregivers using SMS text messaging. The central value proposition is the engagement by schools with their stakeholders. At the most basic level schools engage with parents regarding unexplained absenteeism and other immediate concerns such as school accessibility, timetabling, security and events such as parent/teacher meetings, speech nights and sports. At a more sophisticated level, schools seek to build broader stakeholder involvement in their activities as well as for fund raising support. Over the past three years, the company has increased its penetration from 248 schools to over 1,000, including 30 in New Zealand. MGM Wireless’ revenue model varies according to solution type, but typically a school will pay a variety of fees including set-up, installation and training, annual licence and support, and message charges. The standard relationship is a multi-year service agreement and the bulk of the company’s revenues are recurring. The release of new products, such as Rollmaker, opens up new avenues for revenue generation independent of the core SMS text service and have the potential to greatly increase market penetration as well as yield per school.

Business Drivers and Growth Profile
MGM Wireless has been successful in developing market awareness of its communication solutions and building penetration amongst schools and increasingly pre-school child care centres, with the number of customers now exceeding 1,000. Although there is very little competition, overall penetration remains relatively low, which provides enormous growth opportunities. As the functionality of the company’s products has broadened, from a basic advisory service (unexplained child absence from school) to a wider communications platform with parents and more recently to market leading capabilities in terms of managing out of classroom rollmarking and identifying the location of absent students, the offering to schools has become increasingly compelling, especially in terms of enabling schools to meet their duty of care responsibilities. The emphasis has shifted from effectively monitoring and the administration of truancy to parent engagement and child safety. Accordingly, parent interest is becoming increasingly important in driving school demand for the company’s products. Product innovation is central to the company’s strategy of maintaining market leadership and in driving long-term growth. Its technical position is supported by several global patents including covering the company’s most recent product launch, MGM PinPoint.

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Growth will be driven by increasing penetration of the schools and pre-school child care centre markets, ongoing enhancement of existing products and new product which will increase the yield per school, and potentially a move into international markets. Whilst a major acquisition is unlikely to feature in the near term, small add-on acquisitions are possible where small developers have complementary products and have limited capability to expand beyond a small number of customers.

Gordon Capital Pty Ltd

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GENERAL ADVICE WARNING: The information contained in this Report is only of a general nature and does not constitute personal financial product advice. In preparing the advice no account was taken of the objectives, financial situation or needs of any particular person. Therefore, before acting on the advice readers should consider the appropriateness of the advice with regard to their particular objectives, financial situation and needs. Readers should obtain and consider any relevant Product Disclosure Statements before making any decisions about the subject matter of this Report and should seek independent professional advice. DISCLAIMER: Although every attempt has been made to verify the accuracy of information contained in this Report, Gordon Capital Pty Ltd (Gordon Capital) and Pearce Callahan & Associates Pty Ltd (Pearce) make no warranties about the accuracy or completeness of any advice or information. The officers, agents, related affiliates, related body corporate and employees of Gordon Capital and Pearce accept no liability for any loss or damage whatsoever arising from any investment decisions or use of the information or advice in this Report. All information and advice contained in the Report are subject to change without notice. All investment decisions are subject to risks. Past performance should not be taken as an indication of future performance. Any ‘forward looking statements’ contained in this Report are based on current expectations about future events. Words such as “anticipate”, “believe”, “expect”, “project”, “forecast”, “estimate”, “likely”, “intend”, “should”, “could”, “may”, “target”, “plan” may identify forward looking statements. Such forward looking statements are based on views held at the date of publication of this Report and are not guarantees as to future events. Forward looking statements are subject to risks, uncertainties and other factors beyond the control of Gordon or Pearce. Therefore, actual results may differ from those referred to in such statements. DISCLOSURE: This publication has been prepared by Gordon Capital Pty Ltd, AFS Authorised Representative ASIC No. 338899, as Authorised Representative of Pearce Callahan & Associates, ABN 90 053 868 410, Australian Financial Services Licence No. 288877. The registered office of Pearce Callahan & Associates Pty Ltd is Level 1, 2 Main St, Greensborough, VIC 3088. Please note that Gordon Capital has been retained by MGM WIRELESS LIMITED to provide this report for a fixed fee. Gordon Capital does not provide specific investment recommendations and does not receive any additional benefit for the provision of this report. Gordon Capital aims to provide a balanced and objective analysis in this report. Michael Gordon the analyst responsible for this report does not receive any indirect benefits or assistance from MGM Wireless. Our remuneration is not linked to the views expressed in this report. However, at the time of writing the report we hold shares in MGM Wireless.

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