The angling market is a sector that I know very well as I also work in marketing for the UK’s largest tackle manufacturer, and in the past I haven’t been convinced that the shares in Angling Direct (ANG) have offered any value for investors. On paper they still looks very expensive based purely on metrics such as profit and cash flow, but over the last few months I have been watching the share price drop back and, given the speed of growth and future potential for more of the same, I believe they could offer a longer term investment from current share price level of 75p on the ask. The market cap for this fishing tackle retailer currently stands at circa £47 million, so to consider an investment you really need to believe that there is further rapid growth to come, with the net asset value only covering around £27 million of that...
Based on the current financials alone I probably wouldn’t touch this, but the company has been expanding rapidly and is by far the biggest player in the UK, as well as looking to replicate the same across Europe, and with plenty of large new stores having been opened since it first listed in 2017. It also seems to have had little trouble in raising capital, with £20 million coming in last October via an over-subscribed placing at 92.5p, which is important for a company at this stage which will need capital to continue growing at its desired rate. Whilst it is true that angling isn’t as popular as it once was in the UK, it is still a big market, and that is the same across Europe, where the company is still seeing rapid growth – for the year ending January 31 2019 international sales, across 48 countries, were up by 112%, and the latest trading update showed European sales were up by 66%. There is plenty of potential for growth to continue as angling becomes more popular in some countries, and in some cases there is no easy access to fishing tackle so a lot of it is ordered online from either the UK or US.
Angling Direct has already pretty much taken over the UK retail market, with no other chains coming anywhere close, and if it can do the same elsewhere then the growth potential is large – it has already taken out a lot of the shops which could have been viewed as serious competitors. Whilst this sort of growth is impressive it does of course at some point need to show that it can turn that into profitability, and ultimately return money to investors via dividends – although at this stage any spare money is far better spent on expansion. There will also be some concerns as to exactly how Brexit will affect the business, plus if we were to see a serious economic crisis then I would also expect it to take a hit as people would have less spare money for their hobby, so they do have to be careful not to overstretch themselves and to carefully choose how they expand.
In terms of the figures, total sales for the full year up to the end of January were up by 39% at £42 million, with over half of that coming from online business, which resulted in a gross profit of £13.8 million, but after admin expenses and other items the company actually made a small net loss. This isn’t a company that I’d be throwing my life savings at as I consider it to be a speculative buy, plus it is illiquid most of the time so isn’t one to be looking at for a quick trade. However, I do believe that it has long term potential if it can translate its rapid expansion into revenue growth and ultimately a net profit to supports the market valuation.
Filed under: Angling Direct, David Sefton, PWC, GlaxoSmithKline, Persimmon, Mobile Streams
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