Spaceandpeople (LON:SAL) markets, sells and administers promotional space in high footfall venues across the UK, including shopping centres, theme parks, retail parks and airports. It offers a comprehensive service covering everything from consultancy to the provision and management of retail merchandising units in shopping centres.
A five year agreement with Land Securities started in April 2012 and provides SpaceandPeople with an additional weekly footfall of 2.4 million shoppers in 12 venues including many of the leading UK shopping centres including The Bridges (Sunderland), White Rose (Leeds), Gunwharf Quays (Portsmouth) and Overgate (Dundee).
All good company stuff but what about the numbers?
Over the years I have developed a methodology focusing on five fundamental factors; price, earnings, growth, net debt and cash-flow, which help me follow Warren Buffet’s two rules of investing:
Rule 1: Don’t lose money.
Rule 2: Don’t forget rule number 1!
If you lose 50% of your money, you need to make 100% to get it back. That’s a lot of hard work. I know. Of my first three stocks two went bust and one was taken over for a fraction of what I paid for it. I bought them because of the hype about the future and because they were going to make me rich. They were valuable in terms of learning but that’s all.
My method is intentionally boring and has a layer of in-built safety (a margin of safety if you like) so I don’t have to worry about short-term fluctuations in value. When investing based on fundamentals you don’t have to worry about Mr Market’s irrational mood swings, although price volatility can help you time your entry and pick a good stock more cheaply.
One of the key things I have learnt is that your investment style needs to fit your personality. For me it’s important that I have real conviction when buying a stock so I don’t panic during market corrections, unless the facts change of course.
Back to SpaceandPeople
SAL has a PE ratio of 10.9 (forward P/E of 8.1) and a dividend yield of 4.5% that is more than twice covered. Earnings are forecast to grow at 24% for the 12 months to December 2012. For a company that is forecast to grow its earnings by 24% year on year, a P/E of 10 seems a bit on the low side.
Maybe there’s a reason. SAL is an AIM company with a market cap of only £13m. I imagine there are plenty of investors who have a blanket rule not to invest in small AIM companies because they are a risky proposition. I had my fingers burnt when I started out, chasing racy AIM companies with no profits and managers determined to dilute investors’ holdings at every opportunity.
But I don’t think SAL falls into that category. For a start there are profits of £1.2m on £10.7m of turnover, net cash inflow from operating activities of £2.1m (primarily used to repay debt and pay the dividend) and a dividend paid of £0.5m. Net debt is £0.5m.
I would say the company is in pretty good health. The big risk is that we don’t know much about management and whether they can deliver the forecast growth. This is where the opportunity to make money exists. The contract with Land Securities makes me believe this small company is punching above its weight and the five year contract means SAL should continue to grow. The company’s revenue is heavily skewed towards the UK but SAL has divisions in Germany, India and Russia so it’s growing and diversifying internationally.
The share price probably won’t move until half-year results in September 2012, but the dividend means that I’m paid to wait and that's why SAL is part of the ValuableGrowth portfolio.