Sirius Minerals (LSE: SXX) and Globo (LSE: GBO) both have plenty of fans on financial bulletin boards. Sirius released further planning news today, while Globo published its annual results. Is now the perfect time to buy?
Globo
Globo has a range of products and services to help businesses develop or enhance their mobile capabilities in devices, data and apps. The company posted some impressive headline growth numbers, which were all ahead of market expectations: revenue of €106m (+49%), profit before tax of €36m (+30%) and earnings per share of €0.094 (+27%).
The biggest contribution came from Globo’s GO!Enterprise business where revenue soared 94% to €58m as the customer base grew to 0.8 million business-to-employee device licenses (2013: 0.3 million) and 31.8 million business-to-consumer licenses (2013: 13.1 million). The company’s drive to expand its market presence in the US saw revenues from North America increase by 334% to €15.5m.
The company also reported major contract wins since the year end with customers including Coca Cola, Intel and Vodafone. Globo chief executive Costis Papadimitrakopoulos commented: “After a strong start to 2015, we are well positioned to continue on the trajectory of the previous year”.
You may be surprised to hear, then, that even after a current 7% rise in the shares today to 51.4p, Globo trades on a price-to-earnings (P/E) ratio of just 7.5.
The reason for the lowly P/E is that while Globo has its fair share of enthusiasts, there are also plenty of sceptics in the market (some sceptical enough to hold short positions in the company). The sceptics aren’t looking at the impressive numbers in profit and loss (P&L) account, but are focused on the balance sheet and cash flow statement.
Heavy capitalisation of development costs, ballooning receivables and poor free cash flow relative to (P&L) profit are some of the concerns of the sceptics. While capitalisation of development costs is required under accounting rules, and growing receivables and lagging cash flow are par for the course for fast-growing companies, sceptics believe Globo’s accounting is “aggressive”, leading to an over-valuation of the company.
Some argue that the possibility of aggressive accounting is already more than discounted in the share price, so why not invest?; others simply say: why take the risk? That’s the choice facing investors, and there’s no definitive answer.
Sirius Minerals
Sirius Minerals’ flagship York Potash Project asset is the largest and highest grade polyhalite resource in the world, and sits in the North York Moors National Park. The company reckons that at full production the mine will make an annual contribution to UK GDP of over £1bn.
First, Sirius has to negotiate a number of obstacles, in the shape of planning applications, on its journey to becoming a grand national potash powerhouse. Three fences have already been cleanly jumped.
Scarborough Borough Council has approved an application for temporary accommodation for construction workers and a park and ride facility at Whitby. Redcar and Cleveland Borough Council has approved an application for a transport system between the mine and a minerals processing facility at Teeside, and a separate application for the facility itself.
Now Sirius faces the Becher’s Brook of the planning obstacles: approval from the North York Moors National Park Authority for the actual mine, as well as for the part of the transport system that falls under its jurisdiction. The determination is likely to come before the end of May.
The next move in Sirius’s share price, then, is essentially a bet on the outcome of this application. The perfect time to have made this bet would have been in February-March when you could have picked up the shares for 7p-8p, because the shares have risen to a current 12.5p as Sirius has cleared the easier planning fences.
Nevertheless, even from 12.5p one would expect the shares to soar, if Sirius gets the go-ahead. The potential rewards could be great, if you have the appetite for a flutter.
