RE: Over £100K bought this morning...21 Jul 2020 20:41
The Covid-19 enforced lockdown has forced millions of organisations to adopt remote working practices, providing a boom for remote conference meetings companies and one that could signal a major structural change in working arrangements longer term.
That’s the key reason why I suggested buying shares, at 138p, in LoopUp (LOOP:179p), a London-based premium remote conference meetings company (Alpha Report: ‘Tap into the remote working boom with LoopUp’, 2 July 2020). The company offers its information secure, reliable and easy-to-use remote conferencing technology to customers in key professional service verticals (law, accountancy, investment banking, corporate finance, private equity, asset management, insurance, PR and marketing). The client base includes more than 20 per cent of both the AmLaw Global 100 firms and the world’s top-100 private equity firms. With offices in North America, Europe, Hong Kong, Sydney and Barbados, LoopUp’s geographic footprint covers the world’s major business capitals.
A trading update at the tail end of last week highlights just how these secular trends are increasing the number of users, and profitability, too. LoopUp’s first-half revenue soared by 43 per cent to £31.9m, and on four percentage point higher gross margin of 71.5 per cent. Moreover, with overheads lower year on year, the operational gearing of the business really kicked in, so much so that first cash profits (earnings before interest, taxation, depreciation and amortisation) soared by 249 per cent to £12.2m.
Analyst Peter McNally at brokerage Panmure Gordon had been forecasting a cash profit of £10.7m on revenue of £50m for the whole of 2020, so has been forced to push through material earnings upgrades. In fact, based on what still looks like conservative upgrades, Panmure now forecasts annual revenue rising by 31 per cent to £56m to deliver cash profit of £16.9m (2019: £6.4m) and pre-tax profit of £10.2m (2019: £0.5m). On this basis, expect earnings per share (EPS) to rise from 2.2p to 15.1p, implying the shares are rated on a modest forward price/earnings (PE) ratio of 12, a hefty discount to the UK Small-Cap Technology sector average of 17.6.
It’s worth noting that with cash profit building so quickly net borrowings have been slashed by more than half from £11.4m to £5.4m since the start of 2020, well ahead of Panmure’s year-end estimate of £7.6m. This means that more of the economic interest of the enterprise can now be attributed to shareholders. The debt reduction also reduces interest costs, thus boosting net profits.
LoopUp’s share price has surged by 29 per cent to 179p since I published my Alpha Report and is well on the way to achieving my initial 225p target. Given the scale of the upgrades, the share price risk is clearly to the upside. So, ahead of the company’s operational update on Wednesday 29 July, I continue to rate the shares a strong buy.