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Tuesday, August 9, 2022

Unlocking the Value of E-Commerce in Logiq (OTCMKTS: LGIQ)

Logiq Inc. (OTCMKT: LGIQ) is a U.S. based company that empowers small to medium business (SMB) economies of scale to compete in a global world dominated by Direct to Consumer (D2C) e-tailers like Amazon and Walmart.  The company has e-commerce and fintech business  solutions yet maintains a very low multiple compared to other e-commerce platforms like PinDuoDuo with an $80 billion market cap yet still loses money.  What makes LGIQ so attractive as a value play beyond the fact that they have a bottom line is that they aren’t getting any credit for their user base that they have established in many key markets like Indonesia. The company has a spinoff in the coming days to weeks that will separate the business into 2. Value investors would want to purchase the stock before they announce the spinoff with the idea that they would get shares of both and the sum of the parts is worth more than the whole. 

Logiq operates two segments a North America Digital Marketing division “DataLogiq” which provides digital advertising services that are available through TradeDesk and Magnite. What makes Logiq unique is it offers the same services but at a fraction of the price of TradeDesk and Magnite. Logiq consolidates their bulk buying power for the benefit of the small businesses “SMBs”to compete against online goliath’s AMZN and WMT. Logiq’s second division “AppLogiq” is a global Ecommerce, Fintech division which is expanding in the world’s fastest growing ecommerce market, South East Asia.

Understanding Logiq’s Divisions

Logiq Inc. (OTCMKT: LGIQ) DataLogiq business provides a data-driven, end-to-end marketing and consumer acquisition solution.  Its AI-powered LogiqX™ data engine delivers valuable consumer insights that enhance the ROI of online marketing spend and personalization.The algorithms are optimized to win the sale and generate revenue. 

CreateApp™ is a platform-as-a-service, which enables SMBs worldwide to easily create and deploy a native mobile app for their business without technical knowledge or background. Since many don’t have computer access to build a website, they directly use an app builder from their phone.  CreateApp™ empowers businesses to reach more customers, increase sales, manage logistics, and promote their products and services in an easy, affordable, and highly efficient way.

CreateApp™ is offered in 14 languages across 10 countries and three continents, including some of the fastest-growing emerging markets in Southeast Asia. The company’s Fintech division “PayLogiq”, branded as AtozPay™ in Indonesia, offers mobile payments. One of the key approvals they received from the Indonesian government was the ability to charge interest on micro loans.  They also partnered with Mentalku, which is an exclusive licensed provider of psychological testing to the Indonesian government.  What is so interesting about these partnerships is that the government bypassed the unicorn Grab Financial which reported Gross Merchandise Value (GMV) of $3.9 billion in favor of the smaller Logiq.  The way AtozPay started in Indonesia was a pure grass roots campaign that was just the right amount of big that fit in with the local culture.  The rationale behind this move might play out in the future and is most likely beneficial.  There is also a rebranding plan of AtozGo™ that offers hyper-local food delivery services. 

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Path of Unlocking Shareholder Value

On November 2 2021 Logiq, announced its board of directors had approved a plan to separate its DataLogiq and AppLogiq businesses into two independent publicly traded companies. The plan called for the AppLogiq business to be acquired by another existing or newly formed publicly traded company.  President and founder Brent Suen noted 

“We believe separating AppLogiq and DataLogiq into two ‘pure-play’ publicly-traded companies would unlock additional value for our shareholders.  As independent companies, each would have a sharper focus and greater flexibility to pursue M&A opportunities in their respective markets for e-commerce in the U.S. and fintech markets in Southeast Asia.”

Assuming the current market capitalization of $60 million dollars, LGIQ is trading at 1.8X TTM while peers; Shopify  Magnite, Kubient, Sea Limited, Society Pass just to name a few, trade on average 32X TTM.  With this type of disparity there is likely room for multiple improvement. Revenues for the past 3 quarters came in at $24.2 million and estimates for Q4 are $10 million which means total year profit could come in greater than $34.2 million.  This translates into 28% growth sequentially and greater than 52% over the same year-ago quarter. In a recent interview President Suen projected revenues of $100mm for 2022. On the call one analyst recently pointed out, to LGIQ, that  ‘the sum of the parts is far greater than the whole.’ Based on comparable public market valuations and private equity funding for companies in the emerging markets fintech sector, it would imply that AppLogiq’s standalone valuation could  justify a $500 million market capitalization by itself.

Brent Suen noted 

“This acquisition represents the next major step towards enabling both of our valuable business segments to better capitalize on their respective growth opportunities in the rapidly evolving e-commerce and fintech landscape, moreover, we believe this will unlock tremendous shareholder value.”

Reason for the Value Pricing

The third quarter conference call on November 15th 2021 got to the root reason behind the stagnant stock price.  Suen admitted that the IPO on the NEO exchange was a bad idea because the investors were not right for the company and took advantage of a poorly structured deal.  Suen said

“The current share price is due to manipulation. One of the latest things that’s happened was that upon IPO on the NEO, which instead of getting us more attention and visibility, has instead created a scenario where there has been the ability to manipulate our share price downwards, every time it tries to go up.” 

While warrants serve a purpose in that they can raise additional funds, they can also be used as a weapon to make money for the unscrupulous at the cost of shareholders. Investors watching the stock realize that there is significant resistance at the $3.00 level.  Once the share price crosses that level the relentless selling from the warrant holders begins because they can short with the idea that if they are overwhelmed they can exercise their warrants to cover their short position.  Crossing $3.00 on volume is a key resistance area and could trigger a short squeeze.  

Investment Summary

The way to unlock value in a stock is to be in it long enough for market forces to push it toward its fair value.  The investment thesis is that in the long term the markets efficiently price stocks.  LGIQ had been undervalued for a considerably long time when comparing the current metrics with the valuation of its peers trading multiples of TTM. It has been trading in a very tight consolidation band and just itching to break out and the catalyst could be the splitting apart of the business segments.  One the corporate split up is announced a structural problem is created for the shorts.  If they continue to short the shares after the announcement of the spinoff they will be unable to deliver the new shares because they are not entitled to them. The only way to get out of that obligation is to buy the shares back or exercise their warrants.  If this happens then the market price should swoon higher.  

There are really good underlying catalysts in the company as well.  The revenue growth is climbing and so is the profitability.  It looks like they have more acquisitions to go but this structural overhang keeps affecting valuations making them unable to pursue any all stock deals.  They also have government support of their payment platform which is likely to lead to much bigger contracts down the road. They also have an uplisting to the NASDAQ in progress.  The “application finalized is pending” and could be announced imminently, and begin trading within three days of the announcement.  The biggest risks are more of the same and a flat market persisting with 2 companies instead of one.  The year is drawing to a close so investors need to be in it soon or they could miss out on a nice spinoff in order to create shareholder value. We will be updating on LGIQ when more details emerge so make sure you are subscribed to Microcapdaily so you know what’s going on with LGIQ.

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Disclosure: we hold no position in LGIQ either long or short and we have not been compensated for this article.

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