It's a steal!

It's a fact that in the long run 'value' shares outperform 'growth' shares. What I look for is a growth company that's currently great value. It's a bit like looking for hen's teeth sometimes, but they are there to be found most notably amongst the micro-caps.

Here's some financials for you:- This company has a £3m market cap with a current NAV of £3.7m (a discount of 19%). Whilst part of that NAV is goodwill and intangibles, the company boasts a cash balance of £1.44m.

The company has zero debt.

In the past four years turnover has increased as follows:-

2014 -      £1.26m
2015 -      £1.52m (+21%)
2016 -      £1.76m (+16%)
2017 -      £1.89m (+7.4%)

EPS was 0.14p in 2014 and doubled to 0.28p in 2015. In 2015, 2016 and 2017 EPS was largely flat at around 0.28p. The historic p/e ratio is around 9 (2017).

Cash on the balance sheet has been as follows:-

2014 -      £1.09m
2015 -      £1.09m (+0%)
2016 -      £1.30m (+19%)
2017 -      £1.47m (+13%)

The company pays a progressive dividend that has increased from 0.05p in 2013 (excluding the special dividend of 0.10p) to 0.10p in 2017. That's a 100% increase with a further increase expected in 2018 (interim dividend has been hiked by 25%).

Gross margins stand at around 98%-99%. Yes you've read that correctly.

Now that's a 'value' company!

Why are the shares currently rated so lowly, and what about the growth going forward?

Well firstly, 2018 is going to see a dip in earnings and from the interim results it appears that the company is going to be around break-even for the full year. This is "principally due to the expiry of a three year customer contract for Migrate". Migrate being one of their principal software offerings. The market is aware of this and from the figures above, it seems that this information is more than priced in (ridiculously so in my opinion).

Principally the company boasts three key products OmniMark, Migrate and AuthorBridge (a very recent addition). It's fair to say that sales of all three have been steady rather than spectacular so far.

With 99% gross margins however, they don't need to be spectacular, steady will be just fine (do the maths!). It should also be noted that the company boasts an impressive client base.

The expiry of the Migrate contract this year should prove to be a temporary blip in an otherwise steady growth trajectory, and (hopefully) a resumption to growth will occur in 2019 and beyond (year end is December), particularly with sales of AuthorBridge beginning to gain traction.

The company in question is Stilo International, and if they do return to growth in 2019 then I fully expect the share price to re-rate significantly from it's current lows. Meanwhile whilst you're waiting you'll be entitled to a 4%+ dividend with the comfort of a very strong balance sheet.

At the current share price Stilo is a real steal in my book!

Please note that Stilo is a real minnow and the shares highly illiquid. From observation on Friday, 22,000 shares traded (as far as I can see) moved the bid up 0.3p (6%). 

As ever, I am a holder of shares and I'm not giving advice so please DYOR.

twitter: @michae1mouse