Roy Mitchell gives us the lowdown on a tasty AIM minnow.
Yesterday's full year results from Spaceandpeople
(LSE: SAL)
were very good and comfortably beat my forecast.
I do not expect that you will have heard of SAL. Even if you are an avid reader of The Motley Fool it is unlikely that you would have paid much attention to the discussion board post I wrote on SAL last April. It produced a few laughs but not much in the way of investment interest.
SAL is one of many Aim listed companies capitalised at under £10m. Its shares have a wide spread, are highly illiquid and days can go by with no trades. Very little news flow emerges from these companies and as the spend on PR is limited, no one is pushing the shares in the City. This need not be a negative as investors in these hidden gems are not looking at the day to day share price.
After I made the post in April I spoke with the managing director of SAL. He explained the business model and said it was his objective to grow pre-tax profits by 50% each year. This had been achieved in the three year to October 2005 and as yesterdays results show, was again achieved in 2006. Ok, the increase was only 48% but I am not going to quibble over 2%.
I spoke with him again yesterday and he sees no reason to change the 50% annual growth target
Other headline figures show turnover up 37% at £1.93m. The dividend was increased by 50% to 1.5p per share despite earnings per share (eps) of 3.1p only up 29%. This was due to tax losses being fully utilised in 2005. I like the sound of that "eps only up 29%"
This gives a price earnings ratio of 27 which is high but not necessarily too high for a company growing profits at 50% per annum.
The business model is very simple. SAL has created an organised market for renting space in shopping malls to advertisers. It is now the dominant player in the UK market, acting for most of the UK's prestige property owners and is successfully expanding the model overseas. In addition, to compensate for the weaker summer months, it is at an advanced stage in discussions to act for a portfolio of well known outdoor leisure destinations for summer activities.
At first glance it may look as if the UK market has stagnated. Last year SAL acted for 169 malls, this year the figure remains the same. However the weekly footfall in the malls it represents has increased from 24m to 27m. SAL can now pick and choose malls and has eliminated a number of poor performers from its books.
SAL floated at 50p on AIM in December 2004, yesterday it closed at 84p, growth of over 65% in 2 years. My reason for not picking SAL as one of my Five Shares For The New Year was not through any lack of faith in the company but because I did not see rapid growth in the share price in the short term. I see Sal as a long term hold and I shall be more than happy if it has doubled from its float price pf 50p by this time next year.
Roy owns shares in Spaceandpeople
