Opportunity knocks16 Jun 2018 13:35
I am a long term holder of XLM and I can barely believe what I have witnessed this week.I thought it might be useful to share my thoughts with existing holders and with potential new holders.
1) No doubt this revenue miss came as a surprise because we have all been used to very consistent performance in the past. However, revised revenue is now £129m from £137.6m last year. So a significant revenue miss which has caused some panic. An important point to note is that the shareholder base at XLM is almost a 50/50 split between private investors and institutions and it is worth noting that there is not a single RNS noting a significant sale from an institutional holder so we know which group panicked.
2) The revised net profit figure is now £29.5m from £30.3m last year returning to £32.6m in 2019. So you have to ask yourself if you think this warrants a near 50% fall in the share price of a company that was already trading on a conservative p/e.
3) It is very important to understand that XL Media revenue yields very different levels of profitability. This is illustrated by the diagram on p.13 of the annual report which you can find here: https://www.xlmedia.com/investor-relations/presentations-reports-documents/ As you can see a lot of the revenue on the right yields less profit than the revenue in publishing on the left hand side and new acquisitions have and will likely continue to come from this area. Taking this into consideration it is important to understand the relationship between revenue and EBITDA at XLM.
4) I full understand and accept why the GDPR and regulatory changes can cause a short term blip in revenue growth. These often rely on complex legal text to be revised and this can take some time.
5) Moving forward if there is one thing I would like to see in the July statement, other than an earnings enhancing acquisition, it is a better illustration and explanation of the potential growth path for this business especially with regards to the US market which they have been focusing on for some time and which looks to be fertile ground for further growth.
For a company with and average ROCE 39.9%, no debt, cash of $43.3m, a yield of nearly 5%, div cover between 1.7 - 1.9. and a rolling p/e of 11.2 you really do have to ask yourself if you will see many better opportunities than this.
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