It isn’t every morning we wake up to a FTSE 250 stock shooting up 15% when the market opens. However, Auction Technology (LSE: ATG) managed to do it today (30 January).
Investors like what they see in the AGM trading statement. The key message is that trading in the three months to 31 December was in line with expectations.
In some ways then, we could argue that today’s move is likely to be something of a relief rally. After all, the operator of “world-leading” marketplaces for curated online auctions has seen its share price slipping lower for some time.
That kind of weakness in the chart suggests investors might have doubted the business can keep up its trading performance. No wonder. We’ve seen some difficult economic times lately and some enterprises have struggled.
Revenue and earnings up
However, in the firm’s first quarter, total revenue rose by 11% year on year. Within that figure, organic revenue lifted by 3%, suggesting a robust underlying performance. The directors said the business is being driven by strong growth in its value-added services.
The company’s auction marketplaces and auction services enable bidders from around the world to access secondary goods. Some 4,000 auctioneer experts curate the goods from the two sectors of Industrial & Commercial and Art & Antiques.
Auction Technology runs eight online marketplaces and listing sites using its proprietary auction platform technology. It hosts around 86,000 live and timed auctions each year.
The directors reckon something of a virtuous circle benefits both auctioneers and bidders. Increasing numbers of bidders participating in online auctions can lead to higher realised prices for second-hand items. Then, the higher prices achieved tend to attract more assets for listing on the company’s marketplaces.
However, the trading record for the business shows losses rather than profits right through to the year ended September 2022 – no wonder the market has been sceptical. But things changed when positive profits arrived in 2023. Now, City analysts expect earnings to more than double during the current trading year.
Could it be that after years of struggling, the business is set to become a growth company set to soar throughout 2024 and beyond? Maybe.
Is long-term growth coming?
The directors are touting a “compelling” investment case. They reckon the market is growing structurally and moving online. Meanwhile, Auction Technology has a scalable platform model with proprietary auction technology.
By that description, Auction Technology appears to be well-placed in a decent sector. However, I reckon it’s worth digging deeper before buying any shares in the company. It could be that despite owning its technology, the firm’s services may be easily duplicated by competitors. So the level of strength of any economic moat here is unclear to me.
One of the main risks for investors is the short record of business profitability. It’s possible for the company to be experiencing a shorter-term pop in earnings. We need to see a longer period of performance to gain confidence.
Nevertheless, the outlook is optimistic. Meanwhile, City analysts have pencilled in a further double-digit uptick in earnings for 2025.
On balance, I think Auction Technology is worth consideration and further research. The stock could make a useful, growth-focused addition to a diversified long-term portfolio.
