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I have tipped shares online dating websites group Cupid (LSE:CUP) a couple of times in recent months at prices ranging from 166p to 186p – the share price is now 196.75p but there is a good reason to buy the AIM listed shares even today. In fact there are three good reasons to buy right now both deriving from the share buyback underway. Timing matters and I sense that there is some urgency here and this is why.
What is now underway is a share buyback organised by the company’s brokers within pre-agreed price and volume parameters. As Cupid is in closed season it cannot stop or alter those terms. That is a ballsy move from Cupid and suggest it has extreme confidence in its business. That is reason number one to buy.
The scale of the buyback is not immaterial. It started on 7th January and after five days 510,000 shares have been bought back and there are now 84,586,971 shares in issue. And this programme will grind on. The company has probably spent just under £1 million on the buyback to date but I reckon it ended the year with at least £6 million net cash on its balance sheet and that in the current calendar year it might make a pre-tax profit of £19 million ( you can see my forecasts here) so this programme will wind on as with the cash earning 0.something percent on deposit but the shares trading on a 2014 PE of less than 10, this is clearly earnings enhancing. That is reason two to buy.
Reason three to buy the shares right today and now is that with management owning 20% of the equity and there being a raft of other firm holders of the shares there are only so many “loose” holders who will sell at anything like 197p. I would have thought that buying back shares at up to 250p would be earnings enhancing. As the buyback goes on the number of loose holders who can be shaken out at anything like the current price will diminish and eventually there will be none. A much tighter shareholder list is well on the way. And that will see the shares move sharply. Which is the big reason to buy the stock now. The buyback s putting a floor on the share price so downside risk is limited while the potential for a rapid re-rating is all too evident.
So no delays. Read the fundamental analysis here and buy at up to c200p.
Tom Winnifrith writes for 10 US and UK websites on shares, investment, business and libertarian and sceptic politics as well as football and food. For alerts on all his articles follow him on twitter @tomwinnifrith
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