PAUL SCOTT comments G4M21 Apr 2022 13:54
Forecasts - many thanks to Singers for revised numbers this morning.
EPS is a much more useful figure than EBITDA, so I’ll focus on that, as usual.
For FY 3/2022, Singers is now forecasting 15.5p, down from previous expectations of around 20p. This gives a PER of 23 times, which looks too high now, so I imagine the share price is likely to take a dive today.
Probably sensibly, Singers is not expecting any earnings growth in FY 3/2023, with a drop to 14.9p EPS forecast (roughly halving from previous expectations for c.30p), then a recovery in FY 3/2024 to 18.8p - although I don’t think anyone can forecast accurately that far out, given all the uncertainties.
My opinion - I’m sitting on the sidelines at the moment with G4M. As mentioned previously, I was effectively forced to clear out or reduce a lot of positions held in a leveraged account earlier this year, and G4M had to go. There had been one too many large Director sales also, which tilted risk:reward downwards for me.
Would I be buying back in now? Not yet, because I think the valuation could reset further down, given today’s reduced expectations.
The other issue is whether it should still be valued as a growth business at all? The same quandary we have with lots of online companies, that did well in the pandemic, but are now struggling to deliver growth, and experiencing increased costs, squeezing profits. Can they re-establish a decent growth trend? We don’t know at this stage, although it seems to me the shift online for many sectors look permanent, not a flash in the pan.
On the upside, I think G4M is a fundamentally good business, is still profitable, and has an OK balance sheet. There have been acquisitions too, which should boost future profits.
As with everything consumer-related, it depends what your investing timescale is. We all know that short-term company profits are under a lot of pressure, so it’s perplexing why the market reacts so negatively when companies confirm the obvious fact that trading is more difficult at the moment. Hence share prices seem to be punished twice - once in anticipation of bad news, and again on release of bad news. At some stage, that’s going to mean some seriously good bargains, for the longer-term, but it’s a brave person who tries to predict the turning point.
I see G4M has just opened down 27% at 262p (market cap of £55m). It’s getting tempting at that level. It’s a fundamentally sound business, so why sell now, that it’s lost ¾ of its value due to a soft period of trading that should pass once the world has digested higher inflation? If the fall continues, then I’ll be looking to rebuild my position here, let’s see where the dust settles.
There’s nothing in today’s update that is a serious concern to me, it’s just going through a soft patch, as you would expect given the macro picture.
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