Risk-tolerant investors looking to net a stock market minnow with exciting growth potential at home and abroad and scope for a margin recovery-driven re-rating should reel in Angling Direct (ANG:AIM).
The resilient specialist fishing tackle retailer is the clear market leader in the UK, where it is profitable and cash-generative from a repeat customer base of anglers, and boasts exciting long-run potential in the much bigger and fragmented European market.
Net cash of £15.8 million represents almost 60% of Angling Direct’s current market cap, providing the company with the funds to drive growth and investors with downside protection should consumer headwinds fail to abate or sub-optimal weather impacts earnings progress.
Singer Capital Markets’ 51p price target implies 40% upside, although investors should note the wide bid-ask spread on what is an iliquid micro cap stock.
REELING-IN RECORD REVENUES
Results for the year ended 31 January 2024 were encouraging, showing a 126% surge in pre-tax profits to £1.5 million on group revenue up 10.2% to £81.7 million.
The revenue haul included record UK sales of £77.4 million with the Norfolk-headquartered firm’s growth strategy re-accelerating under new chief executive Steve Crowe’s leadership and the business continuing to take market share, now estimated at 14%.
Retail store sales increased 7.6% through a combination of new openings and resilient organic growth, while UK online sales increased by 11.1% helped by engagement benefits from the company’s loyalty and membership initiatives including the MyAD Fishing Club app.
Angling Direct, which sells over 25,000 fishing tackle products from industry-leading brands alongside its own brands ‘Advanta’ and ‘Discover’, is scaling up and reducing losses in Europe, a competitive market which could be a big long-term prize for the company.
Online sales increased 36.3% to £4.3 million last year with the key territories of Germany, France and Holland growing by 40%, and post year-end Angling Direct successfully opened its first store in Holland (Utrecht) in time for the spring fishing season.
An additional positive was the 10 basis point uplift in gross margin to 34.9%, helped by improved supplier terms, the outperformance of Advanta and Discover, not to mention a boost from new revenue streams including reel spooling services and commercial marketing, all of which offset increased levels of store theft, a trend that most of the retail industry is reeling from in the current cost-of-living crisis.
VALUE CATCH
Crowe has set out some exciting new medium-term objectives for his charge: through multi-channel growth, and faster UK store expansion helped by a new smaller store format, UK sales are expected to grow to over £100 million and EBITDA (earnings before interest, tax, depreciation and amortisation) to north of £6 million over the next three to five years.
Europe is also expected to break-even, albeit this is a slightly longer timeline than previously envisaged with management taking a prudent approach to continental expansion. Angling Direct will also deploy surplus capital to accelerate growth beyond these targets, including on selective acquisitions.
Angling Direct continues to showcase its resilience with total sales rising 4% in the first quarter ended April 2024, a traditional quiet off-season period, with growth delivered in the UK and on the continent despite well-documented adverse weather conditions.
Singer Capital Markets’ sage Matthew McEachran forecasts sales of £89 million and £98.8 million for the years to January 2025 and 2026 respectively, with pre-tax profits estimated to rise to £1.8 million this year ahead of £2.1 million next.
Based on forecast earnings of 2p for full-year 2026, Angling Direct trades on a forward price-to-earnings ratio of 18, although the multiple drops to the single digits on an ‘ex-cash’ basis, which suggests the shares are a catch.
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
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