MARKET COMMENT
Lastminute Makes A Profit

By Stuart Watson (TMFTiger)
November 22, 2002

Unbelievable! Lastminute.com (LSE: LMC), the pariah of the Internet bubble, has turned in a profit for the September quarter. It was a profit of just £0.3m before exceptional costs. But it's a profit nonetheless. More importantly, it also generated some cash over the same period. Again we're talking about tiny numbers, a mere £0.4m.

Perhaps most impressive is the reduction in costs that Lastminute has achieved over the last year. In 2001 its overheads were £51m, dwarfing its gross profits of £17m. Things looked bleak indeed. I for one didn't think they'd be able to bridge this gap anytime soon. But in 2002 overheads were reduced to £41m whilst gross profits almost doubled to £33m, with the final quarter showing an even match between the two at £15m a piece.

Lastminute has acquired a number of businesses in the last year. As it has mostly issued more shares to pay for them, rather than paying cash, it has managed to preserve a reasonable chunk of the cash pile that it obtained when it floated in March 2000. In fact it has around £50m left in the kitty -- which looks more than comfortable.

At 112p Lastminute is valued at £265m. On the one hand this looks like a pretty full price, to put it mildly, for an inherently low margin business in a highly competitive industry. But it's still growing rapidly as more and more of us get comfortable with buying online. The speed of this growth is difficult to get a proper handle on though, because of its acquisition spree which always makes the numbers hard to decipher.  56% of sales come from the UK and 33% come from France with the remaining 11% spread across 10 other companies. This implies substantial geographical growth opportunities but oodles of execution risk as well.

Overall, you'd have to say there is little value left in the shares. But then again Lastminute seems to be making a habit of proving people wrong!