Quarto Inc (LON:QRT) is an interesting small-cap company (£60m market cap), becoming a leading publisher of ilustrated books worldwide. Mostly focused in the US and UK (reporting accounts in USD), but also operating in Australia and New Zealand.
What initially attracted me to look at this company was the combination of high Quality and Value stockranks:
They very helpfully publish a factsheet on the company for investors, found here.
Growth: finally picking up
Top-line growth has been slow over the last few years, with sales stagnating around the $180m mark from 2010 to 2015. Forecasts have sales moving hgher to $193m for end-16 (reported soon on 28 March), then $214.5m for end-17. So there is some growth finally to be seen here from the sale of illustrated books.
The key motor for growth is the children's illustrated books segment, where Quarto have been increasingly investing with measurable success.
Children's books represented 18% of group sales in 2015, but this proportion is set to rise given the strong growth in this area and disposals elsewhere in the group.
What is also very important for Quarto is that 50% of sales are generated not by new titles, but by the growing back-catalogue, proving the long-term value of copyrights on their published books.
Profitability
While sales have been 2015, operating margins have drifted higher over this period, with net profit growing from $5.8m in 2010 to $8.9m by 2015, resulting from these higher profit margins.
What can boost this profitabiltiy going forwards is an increasing focus on their core business, achieved by disposing of non-core businesses in Hong Kong and Australasia.
Profitability for the group has been held back by poor performance in the largely Australasian Books and Gift Direct (BGD) division, which has been deemed a non-core division.
In their latest trading update, Quarto say that a disposal is close:
Heads of Terms have been signed and the deal is anticipated to close in the coming weeks. The proposed total consideration of A$5.75m...
This disposal should lead to a loss of sales, but clearly better focus for the group and higher overall group profitability.
Overall, quality also looks good thanks to a score of 8 out of 9 on the Piotroski F-score,which I find one of the most useful components of the composite Quality Rank.
Valuation: Looks cheap
Despite a…
