SpaceandPeople – business operations and forecasts of profits

PUBLISHED: Oct 27 2018 @ 06:34 | Comments (0) |

This SpaceandPeople (LSE:SAL) newsletter will examine whether there are good reasons to expect that the company can keep paying out an annual dividend of £293,000 (1.5p per share, or a dividend yield of 7.1%), and even raise it, given the quality of its business operations.

I’ll start with the basic data on income and cash balances in the past.

Revenue, profits and cash

£000s	2013	2014	2015	2016	2017
Revenue	14,567	15,446	13,814	9,661	9,995
Cost of sales	-4,023	-5,839	-5,685	-4,133	-3,389
Gross profit	10,544	9,607	8,129	5,528	6,606
Administration costs	-8,587	-8,696	-7,335	-5,618	-5,640
Other operating income	322	224	295	194	210
Operating profit before non-recurring costs	2,279	1,135	1,068	104	1,176
Non-recurring costs	0	-391	0	-289	0
Operating profit	2,279	744	1,068	-185	1,176
Finance net income	160	18	-28	-40	-35
Tax	-648	-166	-197	-44	-237
Profit after tax	1,791	596	864	-269	916
Loss on discontinued	0	0	0	-543	0
Profit attributable to owners	1,971	456	831	-660	933

Cash at year end	2,088	2,115	1,723	1,584	2,661

Observations:

Large decline in revenue and profits over the five years, but only one year of losses (the £831,000 of exceptional item losses in in 2016 should really be apportioned to 3-4 years prior to December 2016 because the poor spending decisions were taken over a span of years, but not recognised until 2016)
Minority interests (non-controlling shareholdings in subsidiaries) mean that the profit after tax is not the same as the profit attributable to the owners of the shares in SpaceandPeople
The average profit attributable to the shareholders is £706,000 over the five years 2013-17 (market capitalisation is £4.6m). But if we exclude the bumper year of 2013 the average falls to £390,000. Even this average is enough to pay a £293,000 dividend.
Cash holdings (no debt or pension deficit) consistently high and were £2.66m in December 2017. However, this fell to £0.51m in June 2018 (but net cash was also low at the end of the last half year in June 2017 at £0.78m). Even with only £0.51m the company can afford perhaps two years of dividends at a rate £0.29m per year if it can just break even and does not bring down payables from the current level. It expects to do better than breakeven – see below.

Forecasts

SpaceandPeople hire an analyst organisation, Equity Development, to provide a report on the company – presumably to encourage share purchase (they call it “independent research”).

These reports are useful for providing some supplementary information to the annual reports, not least the forward-looking numbers, which I take to be SpaceandPeople director’s best guess about the future.

The Equity Development report published 28^th September 2018 came after the release of the shock first-half loss. It also includes the admission that their original expectation of an operating profit of £1.1m for the year to December was going to be missed by a country mile; it is expected to be £0.21m.

Given that history of mis-forecasting we need to treat the forecast of £863,000 profit after tax for 2019 with a large pinch of salt. Nevertheless, the numbers they produce are interesting – see table below.

Revenue, profits and cash: forecast by the company

£000s	2018 estimated	2019 estimated
Revenue	8,300	9,000
Cost of sales	-2,814	-2,900
Gross profit	5,486	6,100
Administration costs	-5,425	-5,250
Other operating income	150	150
Operating profit before non-recurring costs	211	1,000
Non-recurring costs	0	0
Operating profit	211	1,000
Finance net income	5	3
Tax	-30	-150
Profit after tax	186	853
Loss on discontinued	0	0
Profit attributable to owners	201	863

Cash at year end	1,000	1,600

Observations:

A large drop in revenue in 2018, down 17% on 2017 and 43% on 2013, resulting in a very low profit for the year. But, at least it is still profitable.
A pick-up in 2019’s revenue by a modest 8%, but a three-fold rise in profit after tax to £0.85m due to the rise of £0.7m in revenue feeding into a £0.5m jump in gross profit, indicating a strict control of money paid to landlords. Also helping the profits rise is a fall in administration expenses, from £5.64m in 2017, and £5.43m in 2018 to only £5.25m. Perhaps the directors are being overoptimistic? But they are adamant: the half-year report to June 2018 stated there will be a reduction in overheads of £0.3m, “There have been a number of cost savings achieved in the year so far, mostly through a decrease in headcount. This will result in a………………To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1

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