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By Gary Newman | Sunday 11 September 2016
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
As someone who works in the fishing tackle industry as my day job, and have done so for nearly 20 years, I watched with interest as the first retailer in the sector floated on the AIM market last June.
Having tipped Fishing Republic (FISH) as a buy in the high teens when it was admitted to trading, I have been pleased to see the share price more than double in just over a year, to its current level in the low 40p range.
But it has now reached a market cap of more than £15 million, and I am struggling to see where the value and upside is at the moment from this level.
In terms of its business model to grow via acquisitions of independent retailers, it has succeeded in acquiring several of these in the past 12 months, the latest coming just a week or so ago, and now owns a total of 11 stores, including the new openings under its own brand as well.
The company has just bought Fantackletastic in Lincoln, which has been running for more than 15 years, and paid £150,000 to complete the deal for the company which was generating revenue of £425,000 per annum, with a £40,000 operating profit.
In terms of the market itself, it does seem to be heading in this direction with a lot of the smaller shops closing down to be replaced by chains of larger ones with a big online presence.
The company has also had success when it has come to attracting investment, with the most recent placing back in June raising £3.75 million at 35p, which at the time represented a discount of just under 9% to the share price at the time. The money raised will be used for acquisitions and opening more new stores, as well as for further growth of its website.
The last financials were up to the end of 2015 and there have been some further changes to the business since then – including the integration of the Cotswold Angling business which was acquired in December, plus two new stores and one that has been upgraded to a larger premises.
They showed that gross profit for 2015 was up by 21% to £1.88 million, from revenue of £4.1 million, although that was also accompanied by a 12% drop in operating profit to £321,000, and a net profit of £268,000 if you ignore the IPO costs – with those one-off costs included the company made a net loss of £31,000.
The company is relatively debt free, with just a £243,000 loan plus £24,000 which falls due within the current year, and net assets were valued at around £2.9 million. So on that basis the company is being valued at well in excess of its net assets, based entirely upon its growth potential and profitability – allowing for the cash raised it is still more than double the net asset value.
Whilst I still think that the company will continue to do well, I wouldn’t be looking to invest at this share price level as there just doesn’t appear to be enough room for upside to make it attractive. With the PE ratio currently in excess of 30 (ignoring the IPO costs) and negative growth for 2015 compared to 2014, I would definitely want to see the next set of results and the direction that they have taken before I would consider investing in the shares.
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