Spice Holdings is a fast growing support services business. It was created in 1996 following the management buyout of the support services arm of Yorkshire Electricity. Since then, the Co has expanded into water services , niche telecommunications services and, most recently, into facilities management. It has benefitted in particular from the increasing trend among utilities to outsource non-core support activities ( driven by regulatory cost pressures). And it's stellar growth over the past nine years has been fuelled, in large part, by acquisition, as evidenced by annualised turnover increasing from 7 Million to over 100 Million over the period.
Not surprisingly, given it's roots, two-thirds of Spice's largest dozen customers, representing over a third of turnover, are utilities companies and around half of its business is focussed on blue-collar work. Another reason for Spice's success is its franchising model marketed under the freedom brand. Under this scheme, full-time employees of acquired support services businesses are converted to self-employed contracts, reducing staff costs by @ 30%. Using this model CEO, Simon Rigby believes that he can increase turnover fourfold to atleast 400Million. New opportunities are also being thrown up by the current regulatory review of the network infrastrucure in the electricity industry and growing environmental pressure to install water meters.
So Spice has many of the classic hallmarks of a growth share: favourable market trends, earnings-enhancing bolt-on acquisitions opening up cross-selling opportunities, movement up the value chain into higher margin services, such as overhead power-line work, and good visibilty of revenues. In addition, it has a unique low-cost franchise model, giving it a competitive edge. The Co continues to perform well, too. In results to 30 April, Spice increased Pre-tax profit by 117% to 5.2million and EPS by 87% to 11.6p. At 260p the shares are attractively priced on a PEG of 0.6
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