Looks Very Good7 Jul 2014 14:59
Since I last considered this 2 months ago the price has dropped and how I calculate the EV/EBIT ratio has changed so things now look like this:
Good points
The P/E ratio is undemanding at 10.9
The EV/EBIT ratio is a little high at 7.8 and
...considering that profit increased 65% YoY it looks excellent!
SAG is in superb financial health. This share is even more cash-rich than before. The cash pile accounts for 42.5% of the MC and, comparing it to (MC + Liabilities), it still stands at a very impressive 37%.
Operative margins of almost 19% show that SAG have some serious pricing power / a good niche.
The company has experienced 4 years of growth after many years of losses, and this turnaround has happened during an economically difficult period. This bodes well for the future and really shows how talented the BoD are.
Bad points / reasons for caution:
H1 2013 was exceptionally good therefore the upcoming H1 2014 results will almost certainly going to show profit before tax and EPS to have fallen year on year.
By my calculations, and taking into account that H1 seems to be a stronger period than H2 (that's been true of 2012 and 2013), I reckon 2014 Revenue will be roughly £34m (up YoY), profit before tax will be £4.8m (down YoY), and EPS will be roughly 11.6p (down YoY).
In other words - I think SAG looks much cheaper than it truly is due to an exceptionally good year we cannot reasonably expect to continue.
Conclusion
SAG is still good value / cheap but it's not as cheap as I first thought and, whilst I was eager to buy into SAG before the H1 2014 results before, I'm less keen now. I think I'll hold off for now, see how things play out (I'm expecting a bit of a drop), and then go from there.
Thoughts, anyone?
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