The next focusIR Investor Webinar takes places on 14th May with guest speakers from WS Blue Whale Growth Fund, Taseko Mines, Kavango Resources and CQS Natural Resources fund. Please register here.
Skeletor, there is guidance, but it works a bit bizarre- they use Librium as the guidance providers.
currently they are guiding for a 2019 EPS of 138p and 176p for 2020. Former guidance was at 200p EPS for 2019 (so ~30% reduction).
from a dividend perspective with a 60% dividend payment ratio you should expect to see 84p of dividends in 2019.
They usually provide a low bar and overdeliver, for 2018 they guided 200p and delivered 260p.
If you deduct 216p of cash from the balance sheet, currently they trade for a p/e of 6.3 which is ridicules low for such a company, this is probably a 2400p stock in two years.
Fair enough, pleas not that DFS trades at a ttm P/E multiple of 14.3 while SCS trades at a ttm P/E multiple of 7.6. On top of that (as we discussed) SCS has a huge 51M GBP net cash position while DFS has around 140 of net debt (I used the LSE website for the DFS data). It appears we agree that at least 15M of SCS’s cash are access cash and therefore the actual P/E ratio is lower.
Hi Ragnar, I think we can bring this chat to life, there is no working capital deficit, current assets are 85 (I’m rounding numbers, all figures in million GBP) and current liabilities are 72 so that’s a 13 surplus. If you are referring to operating working capital currently it’s about Minos 45 but that’s the business model, negative operating working capital as the suppliers finance operations (In what is essentially a zero-interest rate loan).
Here are two thoughts for you:
1. There is a float like feature to the business, theoretically, if sales continue at the same rate (no growth is needed) you can extract the 51 million, disburse it to the shareholders via buyback or dividend and continue operations, you will get the cash necessary to operate from the new customers and as long as sales maintain current levels this can continue, this is off course to illustrate a point. obviously a certain level of cash is needed in the business and it is not prudent to assume sales will never decline.
2. Book value is law because they don’t need a lot of capital in this business model, in fact since 2014 they paid shareholders 23.5m GBP, that’s close to the current book value.
So let’s assume we agree that 15M is access cash and SCS pays that to shareholders, you find yourself with 13M of equity producing 9M of earnings and an ROE close to 70%...
what I’m saying is basically ROE is less relevant in this case.
I personally believe that 30%-40% of cash is access cash and if you deduct that from market cap you will find out SCS is trading at an undemanding P/E OF 7+, if management will be able to deliver profitable growth in the coming years, as they have said (opening 20 new locations in the next 5 years) then this is absurdly cheap. I also think that from a free cash flow perspective they produce more then earnings and you can expect 12-14M GBP of FCF a year that means an FCF multiple of 5+ again cheap.
Fair points Ragnar, let’s say you can take out around 13M of access cash, that number is basically current assets minus current liabilities. That’s 0.32 GBP per share.
and let’s assume such a business “should” get an EV/EBITDA multiple of 5-6, I would say that it is relatively conservative and un-demanding.
you get a “fair value” range of 2.85-3.35 GBP per share.
as for the Hof point, I completely agree.
SCS is cheap, with a market cap of 85 and 51 net cash on the balance sheet, SCS can easily produce 12-14 Million of FCF a year without any heroic growth assumptions (In 2017 we saw 24 Million of FCF). At this rate, if market price remains the same, in 3 years the company will have 72 Million on the balance sheet, and that’s after paying investors 15-18 million in dividends…that not bad for an 85m company.
market price seems far from intrinsic value and priced for a very gloomy future.
Well, until recently it traded on the AIM and not the main London stock exchange. it is an Israeli corporation, so a foreign corporation from British investor view point, the industry itself is a very unpopular industry.
The “Founders” have been selling for a long time and market participants didn’t like that. (although most of them are not involved in daily operations anymore and have other ventures, a red flag will be if the CEO or CFO sale shares), PLUS’s IR is lacking in many aspects and they communicate porly…
Now that we have clarity regarding regulation a re-rating is more logical, it’s positive for the large industry players, there are now higher berries to entry compered to 2008 when PLUS started operating and since they are the largest player in the industry in the U.k they should get a valuation which is closer to the former #1 player-IGG.
Sk8dad, I Read what you wrote, I would say that the base case scenario is actually little impact from new regulation and continued growth, that’s what management said last E.C and they gave a very conservative guidance going forward. If that scenario should manifest than a multiplier rerating will happen and a S.P of 30 £ sometimes next year is a probable outcome.
To the member who wrote about the withholding tax- that has absolutely nothing to do with PLUS’s value.
GMD seems like a “high uncertainty low risk” situation, with more cash on the balance sheet than market cap and a Net-Net value of 37p per share (net net=current assets minus all liabilities) assuming BELONG can develop as a viable business we can easily see market price rise to 0.5 which is the tangible book value per share. At a price of 30p per share I believe this is a very compelling opportunity, at the end of the day the only thing that matters are fundamentals and they look good for GMD at current price levels.
Pointing out again to the absurdity of current valuation, EPS for the coming two years should be around 2 £ in a no growth scenario, with 2.39 £ of cash per share on the balance sheet and a market price of 14.62 £ that means the company trades at a multiple of 6.1 ex cash. that is extremely cheap compared to PLUS’s earnings power. A multiple like that is usually reserved to a decaying business and all evidence show that that is not the case with PLUS, I actually believe that the future will show it is completely the opposite.
HeresHopin, they may not converge next year but in the long run cashflows matter, earnings matter and relative advantages matter. Plus is the challenger in this industry and it has a technological advantage, both in the platform itself (internally developed unlike competition) and also “The marketing machine”, the inhouse marketing system, that allows PLUS500 to pay much less for each client. In the long run those qualities and other could have a meaningful impact on valuation and “close the gap”
I believe it is a strategic decision to focuses on one product, be the product leader and develop the product in various geographies.
It has nothing to do with Israeli betting laws, PLUS operates in each geography with a local subsidiary that has all the local licenses.
“The guys running the business “are not really running it, some of the funders are not involved at all.
They have been selling for a long time, and every time without sophistication, on June they did a similar action and share price dropped 6% (which was a great buying opportunity) actually every time they sold so far was a decent buying opportunity.
Of course, much better stake selling process and a better outcome, for all shareholders including the founders, could have been achieved if an investment banking firm would have been hired to lead the process, but they never seem to do that.
As for Playtech, I believe they need the cash as they had recently bought a company. this was opportunistic for them.
In the long run I’m happy for the founders to sell and not be involved. One of the main reasons for the valuation gap between IG and PLUS (IG at a future p/e of 16 PLUS at a future p/e of 8) is the fact that PLUS is an Israeli company and much younger then IG (44 years of operations compared to 10)
the British investing community is conservative and plus, in order to get more legitimacy, needs “to mature” as business, one aspect of that is not having the founders on board if they are not there for the long run.
one more key aspect: in Israeli high tech circles, there is a strong, and sometimes criticized, tendency to build businesses and then sell all the equity via an exit.
Some of the founders, all Technion-educated engineers, have built and sold other business prior to PLUS500. That’s just their mentality, they build, sell and move on.
I believe that for long term investors in PLUS it is better that the founders will sell their stake.
Trading at 8 2019 earnings (without adjusting for excess cash) PLUS is cheap relative to comps and generally for a business that produces 80%+ ROE, has no debt and will likely show strong growth in the future…
One great aspect of owning PLUS is that the company thrives when there is volatility in the markets, and therefore it has traits of a hedge without the disadvantages of shorting or owning put options.
24/09 should be a point in time we will probably see strong forced buying as it enters the FTSE250
and relevant ETF’s will need to buy the stock, a multiplier re rating is a logical development following entrance to the FTSE250. and an strong price appreciation of 50%-60% by year end is a likely scenario.
PLUS500 is cheap compared to its earnings power and therefore it’s a buy.
At a price of 15.4 GBP PER share one PLUS500 share can be bought for 19.84$.
What do you get for 19.84$? assuming 2018 is an outlier year, Plus should earn around 275M USD in 2019, that’s 2.39$ EPS. Ignoring dividends (because dividends are an asset allocation decision).
Plus has 4.45$ Cash per share, PLUS500 Is an unbelievably cash generating business so basically all that cash is an access financial asset. If you some up the numbers PLUS trades at a future P/E of 8.3 (IG for comparison trades at a P/E of 16). if you deduct cash from that calculation PLUS is trading at a P/E of 6.4 for 2019 estimated earnings. That is a very low valuation which is usually reserved for declining businesses, that is not the case with PLUS500 today.
We have much less regulatory uncertainty, and current regulatory environment will benefit the large players as it will drive weaker competitors out of the market, growth from markets outside the EEA is robust, Plus is already 10 years old and we now have a substantial positive track record of delivering strong results. And we might have a near term technical catalyst in September when PLUS joins the FTSE250 and we can expect a substantial volume of buyers in the form of ETF’s.
So, Plus is a BUY IMHO.