Live Company Group – Building for growth (LVCG)

Live Company Group – Building for growth (LVCG)

Live Company Group is due to report its full year 2018 results in the next few weeks. As the last half-year results only covered until the end of June 2018, we are nearly a full year behind any official update as to how the business is performing.

Investors have certainly not been short of news though. A few weeks after the half-year report, the company announced a £3 million placing at a price of 65p to acquire Bright Bricks.

The acquisition of Brick Bricks is intended to have several benefits:

  • Cost savings and enlarged gross margins – BRICKLIVE was Bright Bricks’ single latest customer and consolidation will be in both parties’ interests with the Bright Bricks CEO joining Live Company Group’s board.
  • Scability – the company has a global network and the acquisition of Bright Bricks’ custom statues and touring events can now be plugged into that network
  • Injection of further growth – a bigger offering will give the opportunity to cross-sell into existing customers and increase the enlarged entity’s appeal

In February, the company announced another placing to raise £2.1 million net of proceeds. I took part in this placing as I liked the way the deal was structured. For every one share raised at 65p a warrant was attached with an exercise price of 80p. Normally, what placees like to do is dump the stock and hold the risk-free warrant. To prevent such dumping happening, the company said that they would require those participating in the placing to hold the stock they bought in order to exercise. No stock, no warrants!

I have zero faith that this will be policed, but I am holding as I believe the share price could easily get to £1.50 with a few good RNSs and a fair wind, giving me nice upside on both the stock and the warrants. There is no rational valuation to this – it’s a growth story, and the market likes growth stories. This is a market where any stock can get anywhere.

This deal no doubt prevents some from selling but it doesn’t prevent people from building in a risk-free upside hedge. They could simply short the equivalent amount of shares they were long once released from inside to net off their long, and hold the now risk-free warrants. It would require another payment of the spread and borrowing costs, but it was certainly possible.

Rather than being a typical keep-the-lights on placing AIM investors are no strangers to, this placing was to meet significant demand in the company’s zoo programme. The net proceeds were said to be used to meet this demand with an extra seven BRICKLIVE Zoo shows across both Europe and the US.

Very recently, the company announced a licensing agreement with Licensing Management International (LMI) – an agency created to take care of the European licensing for the original Star Wars trilogy and currently works with Nestle, Game of Thrones, and Shell. Big names. But is it big news?

Licensing, the company’s core business, appears to carry growing margins, at 56% in 2017 and 69% in 2018 (not including admin costs which can be discretionary). Clearly, significant growth here has the potential to significantly trickle down to the bottom line, as long as costs don’t increase in line with revenue growth. As it’s licensing, that shouldn’t be the case.

We can clearly see that there has been growth looking at the company’s recent RNSs with shows being launched across Europe, in South Korea, in the US, in China – this is becoming a global brand.

Financials

We are limited here as to what we can go on, given so much appears to have happened and we are in the dark until the next set of results. Let’s take a look at the income statement:

We can see here a profit of just over half a million pounds, but we have to factor in the loss for discontinued operations. Even then, the company was profitable. This already makes it stand out – growth companies are a dime a dozen but very few are actually profitable – they prefer to grow by spending shareholder cash in the hope that they eventually will, one day, become profitable. However, profits aren’t cash so let’s also check the cash flow statement:

We can see that by adding back depreciation (a noncash expense), we get to the adjusted profit. I normally assume adjusted anything is a bunch of baloney, but in this instance we can clearly see it’s depreciation, which in this case is fair.

However, there was an increase in trade receivables. It’s normal to do the work and receive the cash afterwards, but cash also dwindled because £1.1267 million of payables needed payment upfront. As this is a growth business, one can only assume these trends would be exacerbated and so the placing for working capital would have alleviated this. I don’t see anything worrying here.

What we really need is the results to see how cash is moving through the business and how quickly the company is growing. Anyone can pump out a lot of RNSs but it doesn’t necessarily mean everything is going swimmingly.

One thing that I do believe makes this company stand out, is the amount of stock David Ciclitira holds. If he makes a success of this business, then he will make an absolute mint. He holds just over 39% of the stock, and added £250,000 in the last placing (though he did award himself £100,000 in a cash bonus at one point).

LVCG’s outlook on revenues for the year was £5.75 million (not including the effects of the acquisition) and continued profits. So with results due in the next few weeks, keep ’em peeled.

I hold a long in this stock, but I reserve the right to sell at any point. If the facts appear to have changed – I sell.

 

At the time of publication, the author has a long position in LVCG.

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