Are Globo Plc And Findel plc Set To Double Or Halve In Value?

Here’s why this Fool would choose Globo Plc (LON:GBO) over Findel plc (LON:FDL).

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That was quick!

You’d have recorded a 35% pre-tax gain if you had followed my advice to consider Globo (LSE: GBO) at 28p a share on 16 September — a “top pick“, as I described it.

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The obvious question now is whether its shareholders will enjoy a true value story, or if rapidly rising returns are destined to fade away — let’s delve into its interim results, which were released today. 

Strength

Globo’s stock price has risen 8.2%, to 38p, so far today — and rightly so, in the wake of a solid trading update.

Recent news about its strategy also bodes well for long-term value. 

Strength is in the numbers, and although its growth rate for net income per share is lower than that of other key metrics and may point to a risky investment, you should pay attention to a few other details at this stage of maturity for this tech business. In fact, its most relevant financial metrics indicate that the group is on the right pattern of growth, driven by mobile. 

Its interim results for the years ended on 30 June showed: 

  • Revenue up 56% to €72.4m (1H14: €46.5m);
  • A 55% rise in EBITDA to €34.2 (1H14: €22m);
  • Last twelve months EBITDA at €63.1m;
  • Pre-tax profit up 37% to €22 (1H14: €16.1m);
  • Net operating cash up €21m (1H14: €16.6m);
  • Net cash increased to €47.4m (31 December 2014: €40.4m).

Based on the value of its current assets, its price-to-tangible book value, cash flow and earnings multiples, I don’t see why Globo could not double to 74p, or at least trade closer to its 52-week high of 64p over time.

While it’s true that its lowly earnings per share (EPS increased 14% to €0.049 versus €0.043 in 1H14) could get lower following the issuance of its upcoming high-yield bond, your focus over the next four to six quarters ought to be on its revenues and core cash flow profile, both of which in my view suggest that Globo deserves a valuation some 15p to 25p higher, based on fundamentals. 

Better Value Elsewhere? 

Elsewhere, Findel (LSE: FDL) rose over 15% in early trade today as it emerged that Sports Direct had acquired a stake of almost 19% in the retailer. Strategically, I am not sure this is a great deal for the buyer, although the valuation of Findel is attractive based on earnings and cash flow multiples. 

Findel also said that since completing the strategic review of its sports retailing business, Kitbag, it had “subsequently received an approach for the business from a third party and has agreed terms subject to contract,” adding “However, there can be no certainty that a deal will be reached.

Its shares look fully priced to me right now. 

Today’s rise to 230p appears obvious, as investors bet on deeper ties between Sports Direct and Findel from now on, but aside from that single element, I really struggle to be bullish about a business that is not expected to grow at a particularly fast pace, whose underlying core margins could come under more pressure and whose balance sheet is not particularly strong, to put it mildly. 

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Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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