Sunday share tips: EMIS Group, Ten Lifestyle Group, ZPG
Newspaper share tips from the Sunday Times' Inside the City column, the Sunday Telegraph's Questor and Mail on Sunday tipster Midas.
Give shares in EMIS Group a miss, said the Sunday Times' Inside the City column. The AIM-listed software specialist, which was founded by two doctors in 1987, supplier software services including those for keeping patient records, drug ordering and connecting different primary care services, as well as setting up GPs' websites, IT infrastructure and web hosting. The balance sheet had net cash of £14.0m cash and is a strong cash generator.
Earlier in January, however, EMIS revealed that chief executive Andy Thorburn, who joined last May, had conducted a review of customer and product support processes and identified "a failure to meet certain service levels and reporting obligations" with a GP product supplied on a contract with NHS Digital. The financial impact was estimated "in the order of upper single digits of millions of pounds" and said the company will update the market as appropriate.
Analysts at house broker Numis said the key issues have been uncovered and that it is unlikely it was done for personal financial gain. However, the analysts predict rectifying the issue will result in higher costs, not ideal in a market where the company faces tough competition and the ongoing NHS cash squeeze. There are also "curious signs" in its accounts, says the column, with outstanding receivables, where revenue has been booked but cash has not yet been received, rising to 15% of revenue in 2016 from 3% five years before.
Ten Lifestyle Group was a 'buy' for Midas in the Mail on Sunday. The business, which floated late in 2017, offers wealthy individuals preferential access to top hotels, restaurants, airlines and sports and music events, with the AIM-listed group focusing on corporate clients rather than individuals. Clients include banks or luxury brands makers including Barclays, Coutts, Citi, Maserati or Cartier in the UK, America, Australia, Brazil, China and Japan, which take out three or five-year contracts, paying an annual fee so they can offer top customers access to Ten's services. Ten has just under 50 corporate clients with members running into hundreds of thousands per year. Hotels, restaurants, airlines and event managers like working with Ten because its clients invariably spend more money than the average customer, allowing Ten to develop close relationships with a wide network of travel and leisure groups.
Some new contracts are expected within the next few months, with some previous large contracts totalling at least £2m per year, with several hundred individual subscribers paying more than £1,000 a year. Ten's subscription model is a key point of difference as well as its independence from travel and leisure providers. Turnover rose to £33m in the 12 months to last August from £20m two years before. Analysts at Jefferies forecast revenues of nearly £43m in 2018, rising above £70m in 2019 and above £100m in 2020. This year is expected to be lossmaking after the flotation and investment in growth but profits are "likely to soar", said Midas, to £4m in 2019 and almost £19m in 2020.
"Even as many people struggle with the rising cost of living, the global rich list is growing," notes Midas, pointing to 13.6m people classified as high net worth individuals in 2016, up from 10m in a decade and expected to reach nearly 19m by 2026. "Ten is neatly positioned to benefit from these trends, particularly as its annual subscription fees are a relatively low-cost way for banks and luxury brands to make their customers feel special."
Zoopla owner ZPG "should ride out any troubles", predicted Questor in the Sunday Telegraph. It does not appear that 2018 will be the best year for the housing market, with fewer buyers and sellers, stretched valuations and further interest rate rises, resulting in tough times for high street operators like Countrywide and Foxtons. So it is instructive to watch what is happening among the technology companies that have transformed residential real estate but have not been around long enough to deal with as many peaks and troughs. Rightmove, which has grown to a market value of £4bn, was trading at an all-time high this month. Purplebricks, an online estate agent predicted to cause Rightmove some trouble, hit a high in the summer and has been heading back that way in recent weeks.
ZPG, which as well as Zoopla and PrimeLocation also owns the uSwitch price comparison site, has trended down since reaching all-time highs last February and March but over the course of 2017 was up more than 5%. Full year results in November showed revenues up 24% to £244.5m, driven by acquisitions and adjusted earnings per share up 20% to 15.2p. Net debt increased to £191.5m from £146.5m as result of deals, but the group continued to be highly cash generative with strong cash conversion ratio of over 88%. This week is the company's AGM.
Last week rival OnTheMarket announced that it raised £30m in its IPO of and expects to start trading on AIM on 9 February, with a market cap of £100m, below its planned £200m-250m. Broker Benergerg noted that Zoopla was spending circa £20m a year on marketing, which suggests that OTM’s planned spend appears "unlikely to make a material dent in either ZPG’s or Rightmove’s respective market shares". OTM's IPO is expected to trigger the removal of its rule forcing estate agents to only sign up to one or Rightmove or Zoopla but not both, with the analysts see as a "material positive". With agents had been returning from OTM to Zoopla even with the ruling still in place, there is expected to be an acceleration in returns, which could result in around 2,000 agents returning by the end of 2021 of the 4,000 that defected. , which could result in meaningful upside to the analysts's forecasts.