New Holding: Altitude Group, funded by sale of Royal Dutch Shell

Altitude Group: (ALT.L, AIM All Share, Market Cap £50m, 74p, 1.7% of JIC Portfolio and 0.0% of JIC Top 10)

I have this morning taken a starter 1.7% position in Altitude Group. I have funded the purchase by selling my remaining shares (1.7% position) in Royal Dutch Shell. I’m sure Royal Dutch Shell will do well and it has super divdiend but I think I will, albeit more risky, do much better out of Altitude. Time will tell!

Conclusion:  I attended a presentation by the CEO at Mello in November having first been introduced to it in late summer. Since then I have been learning more about the company and am now convinced enough to take an initial position.  It looks an exciting story and extremely cheap if it delivers its targeted results. I am prepared to risk 1.7% of the portfolio for a story that will, I think, become more widely appreciated by the market, and could be a strong performer in 2019 and beyond. Hopefully one I will be adding to, averaging up, at a later date. 

What it does; from its website:

The services that Altitude Group plc provide are tailored for all clients in the promotional products industry wishing to expand their business through efficiency or improved sales.

Altitude Group plc provide leading technology services, specialising in cloud and server based software that is catered to companies of any size and expertise. Whether you would like an end to end business management system to suit you company or access to product data from the industry’s most comprehensive sourcing portal, you’re in the right place.
Channl is a free innovative eCommerce solution. Distributors are given a free eCommerce website which comes fully branded with their logo along with preloaded promotional products from our trusted suppliers. The solution revolutionises the buying process, allowing customers to browse, customise products and complete checkout within minutes.
Technologo has created a wide range of interactive image solutions that are proven to drive increased engagement from online B2B and B2C buyers, reduced cart abandonment rates and increased average order values.
As part of the Customer Focus Interactive Imaging division, Technologo integrates seamlessly with Artworktool, the patented artwork creation and sharing solution, increasing operational efficiency alongside the improved customer experience that benefits users in 180 countries who collectively create more than one million virtual samples each month.
Altitude Group plc provide a complete website solution for companies in the promotional product industry. Extremely search engine friendly, Customer Focus Websites are the perfect solution to get your products noticed.
Altitude Group plc hosts the highly acclaimed PPD LIVE each year, attracting thousands of key distributors and hundreds of top suppliers making it the biggest show in the industry calendar.
Information Services
Altitude Group plc provide the most comprehensive information service solution improving data flow between suppliers and distributors and supplying them with effective marketing tools on a international scale. Two very different catalogues are published annually for the promotional products industry. Spectrum being the most cost effective option featuring 1000+ products from 70 leading suppliers and Envoy, the catalogue that boasts regional exclusivity and includes 80+ leading suppliers.
PPD the industry’s most widely read publication and an ideal platform for distributor facing advertising campaign. Printed 11 times a year, it includes over 60 pages of news products, technology and innovations and has the widest distribution throughout the UK, Ireland and Europe. The magazine is also published online with over 15,000 view per month.

Why I bought this morning.

I was impressed with the energy and ambition of the CEO at the Mello investor event. She has a clear vison for the company and I think can leverage its growing position in the huge promotional products market in the US.

Last week it announced a placing to raise £7.0m at 68p in order to buy AI Mastermind, (AIM) who are the channel partner for Altitude’s white label ChannelPro solution in the US. AIM is the largest promotional product distributor group in the US.

According to Finncap research issued on the day, customers of AIM members spend an estimated $1.7bn per year in a US market worth $23bn. Only about 11.0% of transactions are on line. Altitude intends to increase this percentage through its AIMPro platform which creates an end-to end solution for distributors to online sales.

The placing went very well and this morning the company announced that it had raised £9m due to substantial support from institutions. I think raising the extra money makes sense as it gives it a little more financial flexibility when it comes to funding increased working capital. A little more dilution is neither here nor there.

The acquisition makes huge sense in that as it adds a strong growth opportunity from AIM members on top of the growth it is already seeing through its existing platform.

Target prices on their own should only be of interest if one works out how the broker gets to them. Finncap has this morning increased its target from 105p to 140p but says that is just a staging post towards its 12-month target of 300p should management deliver to expectations. So how does it get to a 300p target? Eps for December 2018 are expected to be -2.5p but with revenue growing from £6.9m in 2018 to £18.8m in 2019, earnings move to positive 7.4p per share and in 2020 to 15.5p per share. At 300p, 4 times the current price, the shares would be valued at 20.0x which seems entirely reasonable for that sort of growth.

I admit to a slight case of FOMO (Fear of Missing Out) here as some private investors who I respect have taken positions. I understand why but aware of the risks, the main one being it fails to execute as well as hoped, I have initially bought just a 1.7% position. As it updates on progress through 2019 and proves that it is hitting its targets, I hope to be in a position to add to the holding.

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