Appreciate Group (APP) – 38.4p

Appreciate Group (APP) – 38.4p

Last week AIM-listed Appreciate Group announced a new partnership with PayPoint and this will mean that its gifting products are offered to consumers via PayPoint's network of 28,000 retailer partner stores across the UK.  Consumers will be able to purchase Love2Shop e-gift cards, which can be redeemed through many High Street and online brands, at PayPoint outlets.  This could lead to a meaningful increase in revenue and given the market capitalisation of the company it has the potential to drive significant shareholder value.

The news has done little to move the share price though and we already felt that the shares looked cheap, which means that now looks an opportune time to buy in ahead of results later in the month. 

Appreciate Group is a financial services business with a range of brands which provide solutions for consumer and business customers.  Its consumer-facing brands meet various prepayment and gifting needs, its business products help corporate customers reward and recognise their employees and clients.   Gifting, pre-payment and engagement solutions include Park Christmas Savings, and Love2shop.

A trading update was released in late April, revealing that results for the year ended 31 March 2021 will be in line with market expectations, meaning that profit before tax should be between £4.1m and £4.8m.  Total billings, including the free school meals initiative, were £406.5m (2020: £419.9m) and underlying billings, representing Corporate and, continued to stabilise following improvements seen since the initial impact of Covid-19.  Underlying billings were down 11.2% in the final quarter of the financial year recently ended and for the full year they were down by 8.0% to £187.5m (2020: £203.8m).  Second half performance was resilient, reflecting strong Corporate demand, increased digital sales and previous restructuring, mitigating the impact of the pandemic.  The accelerated digitalisation of the business has been a notable feature and digital billings were £19.2m in the final quarter (2020: £3.5m).  There were around £3.0m of non-recurring restructuring costs including the wind down of hamper production and the Republic of Ireland business, of which at least £0.6m is expected to be classified as exceptional costs.  Year‐end free cash excluding funds required to be held in trust was £32.9m (2020: £29.6m).  

Full year results are due to be released on 29 June and although these are unlikely to contain any surprises given the trading update in April, the company will again be brought to the attention of potential investors.  The strength of the balance sheet and net cash position is very comforting and means that downside should be limited to some extent.  We rate the shares as a BUY.

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