there is a thin line between being balanced and realist in a market where growth/expensive stocks are being punished. See what can a style rotation do to a "good business": -38% ytd. After listening the preso, I will reiterate my view: down until the next trading update c. mid September. SEE YOU LOWER.
• a very lukewarm update for such an expansive stock • a gloomy outlook "We do expect the advertising market to be further tested by the economic downturn and we are seeing a softening in advertiser demand for Q3 2022 as lower consumer spending impacts the confidence of brands in the space." • overly greedy management: $2.3m of share based payment • view: going down until the next trading update in mid September
clearly cash generation is the only negative. looking at note 28. Cash used in operations, the main detractors were: - Exceptional items => - Transaction (gain) relating to Capital Reduction and spin out (note 39) => one off - Change in working capital mix: the decrease in trade payables which should prove a short term issue and is part of the way a business passes. - R&D: doubled, would be nice to clarify with management a certain guidance on future R&D spend
=> all in all, 2/3 detractors to cash generation are transitory.
"As at 1 June 2022, Open Orphan had an order book of signed contracts worth £64.2m which is expected to be recognised across 2022, 2023 and 2024. These developments reaffirm the Board's expectations of a profitable growing business with revenues in the region of £50m in 2022.The Group is now well positioned and well capitalised to deliver sustainable long-term profitability."
Price = 1,262.5 FY22 EPS = 20.7 so P/E = 61x FY23 EPS = 33 so P/E = 38x
in a rising rate / inflationary environment such multiples are discounting a lot of growth. Period.
Valuations remain sky high. The stock already discounts a hell of a lot of growth. Base case, the stock flat line as valuation multiples compress (lead by stronger EPS growth). Worst case, stock derate fast and multiples mean revert, mostly led by a falling share price. Best case: TAke over at a premium.