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SpaceandPeople’s (LSE:SAL) shares have fallen from £1.45 in 2014 to 21p today (market capitalisation £4.6m). Average earnings per share over the eight years for which we have figures is 4.34p, which puts the shares on a cyclically adjusted price earnings ratio of 4.84, about one-third that of the average share on the market. Furthermore, the company expects to make modest profits this year (to December), and then see an acceleration in 2019, possibly to £0.8m.
Piotroski score
And it has an excellent nine out of nine Piotroski score for the year to December 2017 indicating no financial distress risk. Even with the reported loss of £0.08m in the six months to June 2018 it still has a good Piotroski score of six out of nine.
Return on capital
A further positive is the return on capital used in the business. This is high because it is primarily a service business assisting shopping centres, major rail hubs, city plaza owners and airports to gain extra revenue by encouraging promoters and retailers to set up promotion stands and retail units in their high footfall areas.
For example, a car manufacturer might put a car and lots of marketing material in a shopping centre or at a London railway terminus to raise awareness; The Economist magazine might hire a stand for advertising and signing people up; a food vendor might take a three year contract for a SpaceandPeople stand on the main concourse at a shopping centre; a Christmas card seller hires a stand for the month of December.
A major line of business is their Mobile Promotional Kiosks, MPK. These are large boxes (about 2sqm) which have four TV screens showing a video of a customers’ product in four directions. The company has 75 of these installed in the UK.
SpaceandPeople might agree to rent space from the landlord for its various retail and promotional purposes, taking on the risk of gaining revenue from client promoters and retailers. More often, it makes arrangements whereby it shares revenue received from the promoters and retailers or takes a cut from the deal it arranges. It has 750 venues signed up – mostly in the UK, but some in Germany.
While it needs to invest in the purchase of impressive and expensive display stands and MPK’s the total investment amounts to only around £1m. There is no need to invest in working capital in most years because the amount of credit it grants customers (marketing department of car companies or a food seller hiring a stand) is outweighed by the amount of credit it gets from its suppliers (i.e. the space owners accept delayed payment for renting the square footage in the shopping centre, airport or London plaza).
High dividend yield – probably sustainable
A strong balance sheet (no debt, no pension fund and some cash) supports a dividend of 1.5p per year, that is a dividend yield of 7.1% (costing £293,000). If the company’s forecast profits £201,000 for 2018 and £863,000 for 2019 turn out to be correct then the dividend should be secure for some time to come.
There are some buts….
I need help with understanding this company. While it has the positives mentioned so far, I also have to weigh these against some significant negatives. To get that judgement right I need as much information as I can get, particularly from those readers who have met the managers and/or have long experience with this business as investors or clients.
Outlined below are a few concerns –
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