I Read The News Today Oh Boy! 11-Feb-2019

11th Feb '19 by matylda

4 comments 1523 reads

Morning all!

Avation ( Avation (LON:AVAP) ) – 263p – £170m – PER 9.8

Trading Update For The 6 Months To End December 2018 – Expects H1 Revenue to be $58m ($52.4m last time) with PBT and EPS to be double last year.

This seems impressive and I will be keeping an eye out for Broker notes here, on this ex-holding.

Lok'n Store ( Lok'n Store (LON:LOK) ) – 420p – £124m – PER 32.7

Trading Update For The 6 Months To End January 2019 – A strong H1 with Revenue up 7.7% YoY, EBITDA mentioned, no actuals.

Looks over valued to me.

UP Global Sourcing Holdings ( UP Global Sourcing Holdings (LON:UPGS) ) – 58p – £47.7m – PER 9.5

Trading Update For The 6 Months To End January 2019 – Underlying Revenue up 20.8%, current trading ahead of expectations.

Looks like there could be value here, will be keeping an eye out for Broker notes and revised forecasts.

As always, all comment most welcome!

Unlock with Email

Unlock with Google

Already have an account?
Login here

MrContrarian

11th Feb '19

My morning smallcap tweet: No wonder Windar was wilting

Connect (LON:CNCT), UP Global Sourcing Holdings (LON:UPGS), Windar Photonics (LON:WPHO), DCD Media (LON:DCD), Stride Gaming (LON:STR)

Connect Group (CNCT) new contract with Reach from October 2019 to 2024 to distribute Daily Mirror etc. Worth £220m PA.
UP Global Sourcing (UPGS) H1 trading: rev up 20.8%. Guides FY EBITDA above market expectations.
Windar Photonics (WPHO) FY18 trading: rev up 59% to £3.5m (prev guided €4 - 4.5m), EBITDA loss €0.36m (€1.22m). Order book only €1.0m (€3.9m). Component shortages hit H2 prodn, some orders deferred. Why has it taken months to warn?
DCD Media (DCD) guides FY rev only £7.3m (£10.2m) and £0.1m pretax. Current Q1 strong, Q1, with sales that were expected to fall into last year falling into the current year.
Stride Gaming (STR) confirms press reports that it is reviewing all strategic options including sale of group. Denies it was fined twice by the Gambling Commission last year, only once.

andrea34

I am put off for the moment with UP Global Sourcing Holdings (LON:UPGS) by the huge blip last year, wondering if their performance will be a bit inconsistent. I'd be waiting to see the results, because I'm figuring that they won't show much if any improvement on 2017.

mojomogoz

Hi Andrea.

I like UP Global Sourcing Holdings (LON:UPGS) as can be seen by notes I've written. Assuming that FY2019 trading goes as forecast then I think new EBITDA from Equity Development note is a low ball. Margin will likely be a little bit lower than 2017 simply as they have invested for growth.

I think part of the way to look at the blip is to look through from 2014 to today and smooth the trajectory. 2017 spike up was a result of a sort of inadvertent channel stuff in that their key customer B&M European Value Retail SA (LON:BME) were expanding rapidly and opening stores. New stores need to be filled so creates growth for UPGS product and effectively pulls forward some demand. So there was always likely to be a bit of cool off as the channel stuff unwinds and then there was the general retail hiatus that developed to throw on top.

As they grow and diversify customers a bit more the lumps should be less. However, their business model will always create some revenue volatility. They do not have forward agreements with their customers. Primark, Asda, BME, Action, small independents, etc order what they need when they need it. That puts UPGS on the front line of ups and downs of consumer sentiment and resulting retailer responses. I don't know what the multiplier is but UPGS likely to experience an exaggerated response particularly to down swings. This short term uncertainty is managed through tight control of SGA expense.

The positive side of the relationship UPGS has with customers is that they are not sucked into being part of the tight margins of general retailers. If they had agreed predictable demand from customers then they would also need to pass on a decent bit of margin. Whereas the more arms length supplier relationship protects UPGS's margin. SGA as a percentage of gross profit (the way to look at them from a profit and cost management perspective) provides decent fat. They look like they can be a 10% net margin business over time IMO.

I believe they have a valuable and good business model and that the stock is too lowly rated. It will take them a while to earn a decent multiple and it will take growth and diversification to smooth out some revenue and so profit volatility. However, based on where they are today I think a very round 100p is visible. Upside surprise can come from customer wins either through existing relationships for new product ranges or new relationships.

Beginner

Ultimately UP Global Sourcing Holdings (LON:UPGS) are so tightly allied with the value retailers that it is impossible to differentiate their fortunes. If you would not be happy investing in one, I would avoid the other. UP Global Sourcing Holdings (LON:UPGS) seems priced about right for me now on a PER of about 10.

I Read The News Today Oh Boy! 11-Feb-2019

Unlock the rest of this article with a 14 day trial

About the Author

Matylda

4 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...