Good morning!
The first two sections of today's report are on growth companies, which are more difficult to value, because the valuation can radically alter, depending on how much growth is achieved. Hence it's easier to get things wrong! Also, investors generally tend to over-value growth, especially in bull markets, when wildly optimistic valuations have been put on many companies which have subsequently turned out to be complete rubbish (I could give examples, but the list is as long as my arm!)
accesso Technology (LON:ACSO)
Share price: 828p (down 4% today)
No. shares: 21.9m
Market cap: £181.3m
(at the time of writing, I hold a long position in this company)
Interim results to 30 Jun 2015 - please note that this company reports in US dollars.
I wouldn't go as far as saying that these figures are irrelevant, but in my view they should not be used to value the company, for two reasons;
Firstly, the seasonality is such that most of the profits are generated in H2. So the H1 figures are mainly just to reassure that things are reasonably on track. Last year the split of adjusted operating profit between H1 and H2 was 15% to 85%. So if you just double the interim profit, then you'll be way short of what the full year profit will come out at.
Secondly, Accesso won a major contract recently with theme park operator Merlin Entertainments (LON:MERL), to provide ticketing systems for all of its sites - over 100 of them, globally. Merlin is the world's 2nd largest theme park operator. This came on top of other contract wins. The nature of these contracts is that they generate long-term, recurring revenues. The Merlin contract will take 3 years to roll-out. Therefore, in my opinion the only logical way to value Accesso now that the Merlin deal is signed, is to base the valuation on 2017 forecasts. Usually I would say that is too aggressive a valuation method, looking two years ahead, but in this case I think it's entirely logical. After all, 2015 and in particular 2016 results, will include up-front setup costs, so are not going to be typical of how the business will perform once the big contract is rolled out.
So for those reasons, the shares are likely to look expensive on a superficial look, over…
