Today, I will be covering Dotdigital, ASOS and Genedrive. Before that here is a brief commentary of today’s headlines:
UK inflation rate rose to 3%, the highest level since 2012. Merlin Entertainment share price plunge by 18% following poor results.
The hope of rate rise has been dented, despite higher inflation, which sent British Stirling lower. Good news for ASOS!
SHARE PRICE: £58 (Up 1.5%)
Another great year for ASOS with sales rising to £1.9bn, helped by their international division (robust growth of 47%) with a hint of favourable FX (constant currency sees growth at 36%).
Change in Foreign Exchange is underutilised both favourably and adversely. In ASOS case, by applying the constant currency growth rate sees it report £1,086m, instead of £1,178.3m.
Their UK division sales growth has slowed markedly from 26% to 16%. Whether this has to do with the weakness of the currency or Brexit, the company didn’t say.
Overall, the company gave sales guidance of 25%-30% for FY18, including their FX tailwind. Also, you can look forward to EBIT margins of 4%. That means a 27.5% sales growth (lower than 34%) leads to group sales of £2,451m.
Volume-driven business model
The average value of a customer order is up 2% to £72.24. Volume rose to 49.6m, an increase of 30% and helped by 3m new active customers (taking the total to 15.4m).
Reinvesting for Growth
Since they don’t pay dividends, their cash balance should rise. But this year it saw a decline to £160m from £173m. Mostly this is due to their capital investment programme. This year it rises to £161.5m from £79m.
Although net cash flow to £145m, it wasn’t enough to cover capital expenditure.
Capex’s guidance for 2018 will rise to £200m-£220m, but positive free cash flow will return in 2019.
The completion of this programme will mean ASOS can service net sales of £4bn, doubling its today’s sales and an increase of capacity by 60%.
Given sales are averaging 25%+, ASOS will probably begin further expansion around 2020, as future sales reach capacity.
Hypothetically, if we assume a 27.5% sales for 2018, 2019 and 2020, group sales would rise to £3.98bn.
Share Price: £0.375 (up 5.6%)
Formerly known as Epistem PLC, this molecular diagnostics business has been struggling for growth. That led to the share price crashing from £5.80, a few years ago, to the current share price above.
The current market value is £6m.
A major focus for the year was the development of our Genedrive® HCV ID Kit, which helps to diagnose Hepatitis C. It gained a CE registration in April 2017, a vital first step to commercialization.
It recently signed a distribution agreement with Sysmex Europe GmbH, a subsidiary of Sysmex Corporation, a world leader in clinical laboratory systemization and solutions, for the Genedrive® HCV ID Kit and Genedrive® platform in the EMEA region with an initial focus on Africa.
Sysmex Europe GmbH will be responsible for sales, marketing, customer support and distribution activities across the EMEA region.
That is all good, but investors and long-term shareholders need to see some real sales. Such as a big healthcare company placing a massive order.
Until then, shareholders shouldn’t get their hopes up.
Revenue came in £5.8m or 13% higher than last year but is below the forecast of £7m. Net loss is up by 8.5% to £6.4m.
My main concern is 40% of group revenue comes from grant funding. That is kind of volatile, it is also used to mask weaknesses of its internal sales prospects. For instance, company’s revenue is £3.17m this year below that of £3.7m in 2015.
My second concern is the R&D expenditure of close to 90% of group sales. Normally, R&D accounts for 15%-25%. It should indicate to you that they are operating in a niche that has high operating costs and low reward.
On top of that, staff costs account for 50% of sales.
Their five-year performance saw Genedrive accumulates net losses of £18.2m. Meanwhile, it raised £12.3m to keep it as a going concern.
Cash burn and fundraising
The current cash burn level is £1.9m this year, which is lower than £3.65m last year, a big improvement.
Although it raised gross proceeds of GBP6.5 million at 80p per share, the net proceeds were £6m.
If you participated in last year fundraising then you are down 55%.
Something to Research
The biotech industry has high level of competition. If you are interested in this company, then find if there are rival production to treating Hepatitis C.
Nothing to report, due to continuous losses made.
The risks are too high, due to the level of net losses exceeding revenue. Also, other diagnostic businesses are struggling
Dotdigital Group PLC
Share Price: £0.81 (up 11%)
This business provides email and marketing software solutions to marketing professionals. Anyone familiar with Mailchimp or Aweber knows what Dotdigital do.
Revenue grew in-line with forecast to £32m and net profit grew by £7.1m, giving them a superior net margin of 22%.
Their balance sheet is full of assets with £96k of liabilities. Unsurprisingly, the company is cash generative.
Dotdigital pays a very low dividend yield of 1% (£2.4m), despite having £20m in cash in the bank. Also, it produces FCF of circa. £5.5m.
Average revenue per user rose to £715 per month from £575. So, annual revenue per user is £8,480. The number of users is circa. (£32m/£8,480) = 3,773 clients. This year they added over 550 clients.
This is a hard one to called because before the result PER is on 40 times. Now, it’s on 30 times. It is the sort of pattern seen in Boohoo when they release their results, their valuation level falls.
Dotdigital is a great company, which is reflected in their share price rising to new highs. Margins are super competitive at 20%+, and there aren’t any liabilities on their balance sheet. This company requires more research.
Okay, that’s all for today. There won’t be a report for tomorrow.
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The above analysis is my opinion and nobody else. It does not constitute professional investment advice. Data is correct on at the time of availability.