Hot Features
Premium
Register for real-time alerts, custom portfolio, and market movers
Shares in fully-listed marketing services group Creston (LSE:CRE) have not been a good share tip from me so far. They were recommended on t1ps – the website I founded in 2000 and departed in September of this year – at a share price of 107.5p in May 2011 and hit a subsequent high of 121p the following month. However, they then slumped to a low of 47p by the end of January this year as macroeconomic conditions took their toll. The shares have since recovered to a current 77.5p and a couple of days ago the company announced its results for the six months to 30th September. The following reviews these and the insight they offer on the current valuation…
Compared to the corresponding 2011 period, the results showed an 8.9% decline in adjusted pre-tax profit, to £4.35 million, on like-for-like revenue 6% lower at £37.17 million. After tax and particularly a £3.30 million working capital (largely trade and other payables) outflow, £0.491 million of acquisition spending, £0.432 million of exceptional property costs and £1.61 million paid out in dividends, net debt increased by £1.93 million over the period to end the period at £2.02 million. However, largely due to the reduction in trade payables, the net current asset position improved by £2.23 million to end the period at £0.271 million and a significant decline in expected deferred consideration liability saw the non-current liabilities position improve by £4.08 million to £2.97 million. The overall performance saw the company declare an increased interim dividend of 1p per share (at a cost of £0.61 million) – this to be paid on 10th January to shareholders on the register as at 7th December.
For alerts on ALL articles published by Tom Winnifrith follow him on twitter @tomWinnifrith
The company’s Communications and Health divisions both performed robustly with the profit decline largely emanating from the Insight (market research) division. Although recovery here is noted to be “slower than originally anticipated”, some stabilisation is said to have now been achieved. In terms of overall outlook, the company summarised “the market remains volatile on the back of continuing macro-economic pressures and we therefore naturally remain cautious… The group’s current new business pipeline is healthy and based on historic conversion levels, the group expects to deliver full year headline profit before interest and tax at around the prior year level”.
This level was £10.42 million, with the pre-tax profit £10.29 million – and the £12,000 interest charge for the first half of the current year was £205,000 lower than that for the first half of the prior year. Going forward, the company remains focused on establishing itself as a leader in the provision of digital marketing services (online and digital activities now accounting for 45% of revenue) and in line with this it announced, in conjunction with the results, an acquisition of 75% of Surrey-based digital healthcare marketing agency DJM for an initial £1.2 million. This is a business which has had a successful trading relationship with Creston’s Health division for the past year and generated a pro-forma pre-tax profit of £0.2 million on revenue of £0.6 million in the year ended 31st July 2012, ending that period with net assets of £0.5 million.
The current 77.5p share price capitalises Creston at £47.5 million. For a business anticipating delivering a full-year underlying pre-tax profit in excess of £10 million and with a prospective dividend yield approaching 5% this looks a very harsh valuation. There is obvious macro economic-based risk, but there is a decent diversification of revenue – in the reporting period 65.3% was derived from the UK, 14.3% from Europe and 20.4% from ‘Rest of the World’ – and some seemingly decent growth prospects. As such, I believe the share price recovery here could well still have a way to go.
A PE of 10 would not seem generous and that implies a 130p share price. That is clearly not what I would have hoped for at the start but at 77.5p it suggests that – from here – the shares are worth buying.
To obtain a free twice weekly newsletter (INCLUDING A FREE SHARE TIP IN THE WEDNESDAY EDITION) from Tom Winnifrith with inks to all of his other articles on UK and US financial websites and special offers register HERE
Libertarian investment writer Tom Winnifrith writes extensively for a number of US and UK financial websites. All of that material appears on his own blog, which also carries his extensive original non financial material, at TomWinnifrith.com – for alerts on all Tom’s writings follow him on twitter at @tomwinnifrith
