Notes2 May 2017 10:06
Upsum courtesy of Asha
I have looked at the Jun 16 interims so my comment are based on those.
Being a financial services/tech type of firm their costs will be heavily people costs/marketing and tech costs for their systems to work. This is the reason for the heavy admin costs and I imagine given that they are focussing on improving their marketing and brand awareness that these costs are the same for the next 6 months H2. I do note that they are looking at improving costs and the benefits are to be seen in H2. Hopefully if there is some reduction there it will help with the turnaround story and aid with break even and maybe even profit! My point is that these costs are nothing to worry about and it is positive that they are aware of how high they are.
Their gross profit margin is impressive at c80% and it sounds to me like they are very focussed on attracting and retaining the right type of clients rather than a churn of clients.
I calculated that if revenues increase by 38% for H2 to £15.5m then assuming the similar Gross margin % at 80% (Gross profit of £12.1m) and assuming same admin costs as H1 of £12.3m, leads to a profit of £55k. So the company breakeven. This does not take into account any cost reductions or the fact that they seem to have invested heavily in H1 already.
I would also say that judging by how their revenues increased compared to the PY 6 months despite Brexit concerns in H1 amongst their clients, that H2 16 would have mean more positive and will achieve more revenue growth. Their business is heavily correlated to markets and market sentiment imo. My view is that H2 went well so their business will have done well esp given marketing plan. So in summary there is a chance with increased revenues, reduced admin costs that we may see a profit…
They said this on 6 July 16.
“London Capital Group can confirm that despite the unprecedented volatility in the financial markets as a result of the EU referendum, the immediate impact of the UK's vote to leave the EU has been materially positive for the Company in terms of both revenues and profitability.”
Balance sheet wise I think the company is in fairly good shape now that they have no CLNs and as at end Jun 16 they had £4m of their own cash plus monies due to them of £6m. Their payables were £6.6m. Their cash burn based on 6 m ended Jun is c£1m a month.
Initially I was wary of cash being used up and if the company is still loss making then the cash would get eaten up but they have raised since June to repay the CLNs and then then a small amount £250k (for a tennis player who endorses them).
I can’t say I am totally comfortable re cash but then I don’t have an up to date position. The placing in July to repay the CLNs raised some extra cash for the company too. On the plus side, they do not have debt to finance and they are growing revenues so I can only assume that they are coveri
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