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Not sure what happened to my second point below!.. gone AWOL.
Point I was making is that the reported market expectation for FY24, is not very stella. Slight increase in revenue, and lower Adj EBITDA than that achieved in FY '23. PIs are invested on the back of a growth story, and with a target of £4m of new business for this year, the market expectations need to be raised. We should be looking for 15% to 20% growth per annum, else the SP will hit the doldrums.
Another good year of acquisition integration, New customer wins, whilst meeting expectations with financial results.
I am a supporter / believer, and have used the opportunity to add this morning.
Two points come to mind though;
1) The results are bang in line with the Trading update issued on Jan 22nd. Back in the day, when I lead a similar sized business, (not Public), I always strived to deliver results 3 - 5% better than my last update.... It kept my investor community positive. Doing exactly what they say they are going to do, is better than a "Miss", but it is always good to hold back a little upside. What happens between a Management Trading Update, and the Final results?... The Auditors come in. I hope that they haven't reversed an item, and as a consequence, taken a shine off what might have been a TU beating result. At this stage in the development of the business, the Management Team can not afford to deliver a Miss.
2) They are highlighting that FY24 results will be ahead of market expectations. But the numbers suggest that this is
Taking the RNS at face value....
Sales - Up (albeit primarily thanks to +ve currency movements)
Gross Profit - Up - both in terms of cash and %age.
EBITDA - Up
PBT - No brackets!.
Cash flow - significantly up.
Debt - Under control. Debt to EBITDA ratio is c1.3x
So, why does a company making £18m EBITDA, and converting 90%+ of this into cash have a valuation of just £52m? In my view more conventional metrics would push this north of £100m.
Much of the difference between EBITDA and PBT is going on amortisation of previous acquisitions (Non-cash item), and depreciation which will unwind, albeit they have the costs of setting up Vietnam factory to digest still. Interest charges are up, but indicators are that rates have peaked.
So, the valuation should be rebalanced provided that they continue to chew through the DA, and deliver on the cash conversion, so that they can re-instate the dividend, which should bring back the demand for the stock.
Real opportunity to see this double in price, and that's before any growth is factored in.
One danger whilst the price is so low, is that somewhere a PE house snaps this up and takes it private at a bargain price.
All IMO. - please always DYOR!.
Full year FY23 results out Monday first thing.
Trading update issued in Mid January gives you an idea as to where the numbers are going to be.
Look at the equivalent releases for last year, and you will get a feel for the growth trajectory.
At c£35m market cap, it is still a SmallCap company, but it is growing, and in the right space in terms of tech advertising.
Based on fundamentals, SP should go north of 3p. Test will be to see if the IR team can widen the circle of interest, so that any gains are locked in.
Best of luck
Disappointed that the board has not embarked on the journey towards returning earnings to shareholders by way of dividend.
I topped up just now, and hold 175,000 of these so am well vested.
No surprises in the results, other than its frustrating to hear that we can't open up the revenue pipeline faster. So the 10% drop for me has to be the "Protest vote" of long standing holders placing store on these results and not liking the absence of a dividend or future promise of one.
But you have to ask yourself "Why"?.
Messrs Buckley and Bland hold approximately 37.5million shares between them, and sit in the two most influential chairs on the board. That's approximately 12.5% of the shares in issue. So, one has to argue that they are not swayed for making the case for dividends, and that their focus therefore has to be on capital growth. And, I get that - we'd all be pleased with this a 50% uplift to 50p say in the next 2 years. - but that is not a given, even though the growth trajectory for the financial KPIs is good.
Public opinion (or rather Government's intervention) on on-line gambling is always a risk for this business.
And unlike other shares that I invest in, I am not a user or "advocate" for this product, and so I have no idea how long it might be before Slingo becomes yesterday's technology / fashion. - that too is a worry.
So, I would have argued that the price of initiating the shift in this stock's profile to being one of Capital growth and Dividend, would have been both affordable, and in the interest of maintaining the widest base of shareholders. Instead, the price of a further year of dismissing the opportunity to start the dividend is that 10% was knocked off the capital value.
This share now trades at a 10% discount to the the Enterprise value of 10 x historic earnings, plus cash at bank.
Hmm!
This is a company going places, and at this price it is currently under-valued.
Last Trading Update at the end of January '24 sign-posted EBITDA for Financial year ending 31-12-23 as being £4.3m up 43% on the previous year (FY22), which was 70% up on FY21. These numbers should be confirmed in their results announcement due out end of next month.
They also had c £6.8m of net cash in the bank at the year end.
The business is a Centre of excellence for Digital Marketing.... Helping well known brands get the best return from their advertising spend on social media platforms. So pretty leading edge / contemporary activity. Arguably it is a "Tech" business, albeit asset lite, and focussed on acquiring and managing customers.
Management have plenty of skin in the game, owning c20% of the share equity between the Green Brothers and the Finance Director.
If it were put up for sale tomorrow, on a multiple of 10x EBITDA plus cash, the price tag would be £50m. The current growth trajectory only pushes this number north.
Current Market Cap is just shy of £30m. - so a 66% upside in a growing, profitable, cash generative company operating in the digital space.
That's why I topped up today!
The Naira is down another 3% this week.
Today, you now only get £485 for 1,000,000 Nigerian Naira. At the start of the current financial year this figure was closer to £1,760.
So as we enter the new Financial Year, conversion of the Dividend, (which is declared in USD) and any of the various calculations that one might use to calculate Enterprise Value, (which we trade in GBP), is now diluted to one quarter of what it was 12 months ago.
I appreciate that Nigeria makes up only about 35 -40% of the Groups overall operations, but it should also be borne in mind that in the first 6 months of the current year, 12 out of the other 13 African nations in which Airtel have a presence also experienced a currency devaluation; with three of these (Zambia, Kenya and Malawi), being between 10 and 20%. Only the Central African Franc provided a token Re-valuation to counteract the other 13.
Airtel is a great business, and has delivered sustained growth in their year on year financial performance over the 6 /7 years that I have been invested. Ever expanding coverage, more services, and a mobile banking capability is great if you are a customer paying in Naira, or an employee being paid in Naira, or a supplier invoicing in Naira.
Yes, Nigeria might be the fastest growing economy in Africa, and Yes, the population may double over the next 25 years, but the fact remains that, going into FY '25, the returns on our investment (be it dividends, or Valuation of the Enterprise, which translates into share price), is now calculated at just c25% of the exchange rate that it was a year ago, on what is the cornerstone network in their portfolio.
Usually, when it comes to selling I am hopeless at converting intuition, into action. But in the case of AAF, in the past week I have sold c85% of the c50k shares that I had.
Have I been too rash?
The one possible saving grace is that the Dividend cover has been 3x., and this may be enough to afford what will be part year effects of the recent devaluations, - but for the year that is just about to start, it will be this time next year, before we know whether the full effect has been priced into an SP of c95p.
In January 2022, there were 71,038m shares in issue.
Since then there have been 2 x £2billion share buy back programs announced and executed.
There are now 64,090m shares in issue.
That means on a net basis, the bank bought back 6,948m shares at a gross average price of 57pence.
But, through a simple visual inspection of the 2 year share price graph, the average share price over this time was 46p.
So, either the program has been "unlucky" with its timing of executing the buy backs, or they should have bought 8,695m shares for their £4bn.
This suggests that over the same 2 year period, a total of 1,747m shares were issued as part of various Management bonuses and employee participation schemes.
Issuing 1% of shares capital per year to allow for employee participation in the creation of shareholder value seems reasonable - generally they have to pay (Sometimes reduced price) for these shares.
My Web link didn't seem to convert into my post, so I have copied the relevant paragraph below here:
Analysts' forecasts are presented on a 'reported currency' basis. These include inherent
assumptions for currency forecasts which are specific to each individual broker. In our
latest results report for Q1'24, Airtel Africa highlighted the following currency sensitivities:
"The expected annualised impact of the devaluation in Nigeria incurred in the month of
June 2023 is expected to be between $850m and $900m on annualised revenues, and
between $450m and $500m on annualised EBITDA. With respect to currency devaluation
sensitivity going forward, on a 12-month basis, a further 1% USD appreciation across all
currencies in our OpCos would have a negative impact of $48m on revenues, $24m on
EBITDA and $21m on finance costs (excluding derivatives). Our largest exposure is to the
Nigerian naira, for which a further 1% USD appreciation would have a negative impact of
$14m on revenues, $8m on EBITDA and $7m on finance costs (excluding derivatives). This
sensitivity analysis assumes the USD appreciation occurs at the beginning of the period."
More detail on this is in the investor section of the Airtel Website, and this particular page is under "analysts and Concensus" tab, at the far right of the menu options. (you have to scroll along to the right!), and then look under the link to "Consensus Forecast Data".
I am and have been a long term holder of AAF - to date as a business they have done really well over the past 5 or 6 years. - growing their customers, expanding their territories of operation, and bringing to market a great "mobile banking" product.
But i think that a problem is looming, and so, this morning, I have sold one third of my holding, and am debating reducing it further.
In FY 24 (The current Financial year), there have been two devaluations of the Nigerian Naira.
In April '23, 1,000,000 NGN converted into £1,740 GBP. Today, 1,000,000 NGN will convert into just £535.
The devaluation affects 1 out of 14 countries in which AAF has an operation, but it is their biggest market by far.
Take a look at the following link, which is a page on the investor section of the AAF web site. It is from the consensus of the ~6 brokers who follow the Company. It suggests that the effect of the Naira devaluation is going to be more than just a headwind. It will seriously impact revenues, EBITDA and Profits.
https://cdn-webportal.airtelstream.net/website/investor/main/pdf/20231004_Analysts'_consensus_vFinal.pdf
So the result for the current year is going to be significantly worse than FY '23. You can build a quarter by quarter analysis by looking at the most recent quarterly results RNS. With the second devaluation only occuring with 7 weeks of this FY remaining, my rough calculations suggest that there will be enough Free Cash Flow to cover a Flat dividend, if that's what the board felt able to do - but it would be a massively reduced cover.
My issue is the outlook for FY '25.
The effect of the two most recent devaluations will have a "whole year" effect on the business starting in April 2024, and this, I think will wipe out all the "good" down by the growth in the business, when it comes to converting their trading performance into a USD denominated dividend.
Mary BR suggests that currencies will bounce back, but generally speaking I don't think that there is much form for African currencies re-valuing against the USD / GBP. - very happy to be corrected on this!.
So, my view is that the business is achieving commendable growth, but given the sensitivities of their financial performance record, and in particular the dividend payouts, we have seen enough damage been done, to snuff out the upside of all the growth for this year and next, and my worry is that with high inflation and interest rates in Nigeria, there is every possibility that further devaluations will occur.
£1 per share sales price (£294m) translates to the business needing to get to £23m of EBITDA, based on a 12x multiple, and assuming that cash in bank grows to £20m. (i.e. DF/CF enterprise value of £274m). If FY23 posts EBITDA of £10m, and growth continues at 25% per annum compound, then the £1 valuation is four years from now.... which feels too far out to wait before embarking on a progressive dividend policy.
Investing some cash in improving our ability to deliver for more customers, and shorter time periods, is sensible, but we should be striving to minimize the "Book to bill" time as a matter of business as usual. The value of bringing on-line recurring revenues soonest is often overlooked. (There are 78 recurring months in a year: Slip a project by 2 months, and you loose 23/78ths of this years income). Our games won't remain leading edge forever, and therefore broadening and speeding up the delivery capability would appear to be a no-brainer.
My point regarding the dividend, is that generally incoming buyers attribute a higher multiple when acquiring a growth engine, but as the years tick by, maintaining 20 - 35% EBITDA will get ever more difficult.
When growth slows to less than 10% then it ceases to be a growth stock, and therefore there needs to be a pathway to replace the value of the growth, with an income stream. In fact, whether or not a buyer emerges matters not; - ask yourself why are we happy to stay invested? - because of the current growth rates being posted, and this translating into a steadily rising share price. But, in very general terms, by the time that the growth slows to a single-digit percentage, the SP will level out, and the dividend needs to be 5%+, - otherwise, why invest?.
A 1p dividend in FY 23 would represent approximately a 3% yield, which could plausibly tick up to 5% over the next 3 - 4 years. The business will still get to its £300m valuation, but in the meantime, some of the cash in bank will have been returned to the current patient investors.
I guess my point is that the Enterprise commands a valuation based on a multiple of EBITDA. - Somewhere between 8 - 15 depending on sector , and growth rates etc.
The multiple paid when acquiring cash in the bank is 1!
Been in this share since 2017... and have traded the ups and downs to now have a free ride on 150,000 shares.
I agree that it is time to start making distributions please, within a declared progressive dividend policy.
There is Cash in Bank, and the business model is ideal for making the initial move now.
The business is Capital light.
Growth is organic, rather than risking our cash on acquisitions.
It also has predictable, and growing recurring revenues and earnings, and with expansion all the while with new games and new territories in the pipeline.
GMR has an excellent 5 year track record of growth in the 20 - 40% per annum - every year - and due to the recuring nature of our income FY24 numbers can already be reasonably relied upon, - moreso than were we making widgets.
With no extraordinary expenditure on the horizon, and continued delivery of the known new business, the cash balance in 12 months time should be in the region of a further £5m on top of the £7.5m in the bank at the end of FY23 (as per the TU).
Each penny of dividend distributed costs c£3m, and therefore to embark on a progressive policy starting with 1p for FY 23 seems both affordable, and necessary to maintain the interests of Long Term holders - particularly as the growth rates will inevitably start to slow down.
At the very least, a bit more insight and colour from the BoD, as to whether the intention is to progress to becoming an income stock, or start to grow further by acquisitions would be useful.
Trader / Ratboy
I too have a reasonable holding of DEC held in a Share ISA with Barclays. With the Share price in decline, and the dividends holding up, I have added over the years, to the point that I would now call my self a LTH.
In Sept 22, I registered my W-8BEN form with Barclays, in order that I could at least receive half of the tax deducted by the US Government at source, (i.e. 15%), the but no tax refund has ever arrived. (Barclays are pretty good at making other tax deducted at source refunds e.g. on UK Property REIT investments, which arrive paid at 90% of declared dividend value, and for which the final 10% arrives at the end of the quarter period).
Arrival of the most recent dividend prompted me to try and sort, and so yesterday, I called Barclays to ask why they held 30% of dividend monies paid, wheras others on here, who use other broker platforms, post that they only have 15% WHT withheld, if shares are in an ISA, and Nil withheld if the shares are held within a SIPP.
The lady I spoke to referred to "Technical Teams", the response from whom was centred upon the fact that Barclays view of the W-8BEN form, and the bilateral tax arrangement that it facilitates between the US / UK tax authorities, only applies to US companies, who are registered on US exchanges, and who pay Dividends in USD, to UK tax payers domiciled in the UK. Their argument was that Yes, DEC is a US incorporated Company, but the fact that it's shares are listed on the UK Stock market, and dividends settled in £££, (even though they are declared in USD), means that this dividend payment stream does not qualify for a reclaim.
So, I guess the debate is around what is the exact scope of the bi-lateral tax arrangements, in the context of dividends paid to UK domiciled tax payers, by US Companies who have a UK Listing.
I didn't venture so far as to cloud the conversation with the fact that DEC now too have a US listing,... Does anybody have a view if that changes matters?
So far, I have just accepted that 70% of a 20%+ yielding share is still a good yield, but it frustrates me that the ruling on this seams to be open to different interpretations across different providers, and it is now costing me c£400 a quarter.
Are Barclays correct in their view??? -
Don't really want to go through the trouble of moving shares in to a SIPP or wait for a new ISA Tax year to then start a new ISA with another provider, just to hold DEC shares.
FG