Appreciate Group (Formerly Park Group Plc) - Market Cap £65m, Share Price 35p
Background: Appreciate Group is the new name of Park Group a business that went public in 1993. Park was the birth child of Peter Jonson an entrepreneur who created a Christmas savings club and distributed Christmas hampers to low income families. Today, Appreciate Group provides single and multi-retailer vouchers, pre-paid gift cards and digital rewards services to corporate and consumer markets. Appreciate dominates the UK Christmas Savings market with north of 70% market share and has 5% to 6% share in various segments of the corporate rewards and incentives market.
Appreciate Group represents an opportunity to buy a business with a solid history of profitability, cash generation and dividends, available at a significant discount to fair value. Part way through a digital transformation under the helm of a new management team appointed in 2018 when Covid struck. In the year to March 31st 2020 the business reported record gross profits and underlying profits and yet the shares are close to a 10 year absolute low. After a brief disruption from Covid, operational trends are improving. The business had an all-time record December, with Billings growth of 40%+.
There are multiple avenues for the company to surpass 2019’s profitability (distorted by one off costs) but using that as a base the shares are very cheap. £11.4m of Adjusted PBT, ex one-off investment costs (£1.5m) via the P&L to support the digital transformation. Post tax at 20% this should mean at least £9m of conservative ongoing earnings, an earnings yield of 13.8% pre any benefit from the initiatives put in place by the new management team or end market growth.
Using a 10% discount rate there is at least 38% upside excluding any potential growth. This appears harsh in the context of a growing addressable market, an asset light and improving business model, Appreciates history of growth, depressed interest income from a large and growing float and management’s experience.