Stilo International

I haven't written about Stilo since September 2016. Link below:-

http://michae1mouse.blogspot.co.uk/2016/09/updates-avesco-and-stilo.html

Stilo's full year results are usually published in March, and I recently wrote a small piece on ADVFN which I've reproduced here for those unfamiliar with the company.

Firstly, let's deal with results for 2017 which will soon be announced. Since we have not received any trading updates (year end was December 2017), I think it relatively safe to assume that they were in-line with management expectations.

This implies continued profitability, excellent gross margins, cash generation, a very healthy balance sheet and no debt. They will undoubtedly pay a dividend and, overall, I think we can expect an increase on last year's payout.

That's pretty good for a company currently valued at just £5.4m. Even better when you strip out the cash on the balance sheet of £1.6m i.e. the business is valued at around £3.8m. My guess is that earnings for 2017 will be similar to last year (see half-year results) giving a p/e ratio of around 12 (minus cash basis).

On those figures alone it's a pretty safe and solid investment for such a minnow.

However, all eyes are on 2018 now. If AuthorBridge does finally begin to contribute to revenues then the bottom line will grow quickly because of the very high gross margins. Operating costs are well controlled. In fact, revenues don't have to grow exponentially to make a big difference to the bottom line.

In conclusion, the shares are at worst conservatively priced and (depending on progress with AuthorBridge) possibly very cheap. In other words, I can see limited downside but huge potential upside.

It's also worth noting that in May they said this:-

"The Company remains un-geared, and cash balances at 30 April 2017 stood at £1,560,000 (31 December 2016: £1,466,000). Current levels of cash will serve to fund additional development, sales and marketing efforts as we look to grow our portfolio of solutions and enter new market sectors. It will also be used to assist with potential acquisitions, whilst providing an appropriate financial reserve for the business. Ongoing, it is the Board's intention to maintain a progressive dividend policy with scope for special one-off dividends as may be deemed appropriate from time to time."

A special dividend would be very welcome and an acquisition would be very significant for a company of this size.

I'm looking forward to the results in March with interest.