Altitude Group plc (LON:ALT) is a leading online marketplace and service provider in the promotional products industry. The Group has two distinct business segments: (i) its Services division, AIM Smarter (“AIM”), delivers supply chain management and SaaS technology tools to drive efficiency and maximise revenue for its members; and (ii) its Merchanting division, including AIM Capital Solutions (“ACS”), generates income as principal, providing a full end-to-end order management system and back-office support for its affiliate distributors. After the acquisition of AIM in 2019, followed by difficult trading conditions during Covid-19 in 2020, Altitude’s trading performance is back on track and it is resuming its growth strategy across both Services and Merchanting. In our view, there is still enormous growth potential for Altitude as the industry digitises, which should drive AIM member growth, sales throughput, and increased ACS affiliate recruitment. We expect its asset-light and scalable business model to lead to higher cash generation and profitability as the platform and network grows. Zeus initiates today with forecasts out to FY24.
¨ Trading update: Altitude Group has released a positive trading update for the financial year ending 31 March 2022. The Group expects to report total FY22 revenue of c. £12m (FY21: £7.7m) and adjusted EBITDA of c. £1m (FY21: £0.6m), representing c. 56% and 80% growth respectively. Net cash (excluding IFRS 16 leases) is expected to c. £1m at 31 March 2021. Today a new $700k working capital facility was announced, which is expected to be undrawn at year end.
¨ Key drivers: Services revenue grew an estimated 20% in FY22, with higher member activity on the AIM platform. The £1.9m of personal protective equipment sales in FY21 have been replaced by increased revenues from the Group’s core business. Merchanting revenue increased substantially from £1.9m in FY21 to c. £5.5m in FY22, driven by growth in ACS and other Merchanting programmes.
¨ Outlook and forecasts: We expect a further bounce back in promotional product spend in 2022 as in-person events resume and corporations resume brand-building promotions. Zeus forecasts show £11.8m of revenue and £1.0m of adjusted EBITDA (excluding share-based payments and exceptional items) in FY22, which grows to revenues of £19.6m and £1.6m of adjusted EBITDA in FY24. We expect overall gross margins to decline due to a lower mix of Services revenue, but expect GP to EBIT conversion to increase over the forecast period (FY22: 16.0%, FY23: 17.6%, FY24: 20.3%) due to operational gearing.
¨ Valuation: Altitude Group trades on an EV/EBITDA on 24.0 FY1 and 19.4x FY2, which is a premium to the average of four listed peers in the promotional products and marketing services space (PEBB, FOUR, CMPR, KCT). However, we forecast much stronger revenue growth over the next three years (FY0-FY3 CAGR 36.5%) vs. the mean of these peers (12.7%), with only a slightly lower FY1-FY3 average EBITDA margin. Therefore, in our view, Altitude should trade on a higher near-term EBITDA multiple. Our DCF analysis supports a valuation of 41.0p and medium-term valuation estimate (extending growth assumptions to FY26) is 53.5p per share, or 40.2p when discounting back three years 10%.
Summary financials
| Price | 33.5p |
| Market Cap | £ 23.7m |
| Shares in issue | 70.7m |
| 12m Trading Range | 23.0p– 57.0p |
| Free float | 65.00% |
| Next Event | FY Results – September |
Financial forecasts
| Yr end Mar (£’m) | 2021A | 2022E | 2023E | 2024E |
| Revenue | 7.7 | 11.8 | 13.9 | 19.6 |
| yoy growth (%) | -7.2 | 53.1 | 17.6 | 41.3 |
| Adj. EBITDA ^ | 0.6 | 1 | 1.2 | 1.6 |
| Adj. PBT^^ | -0.6 | 0 | 0.3 | 0.7 |
| EPS (p) ful dil. Adj. | -0.5 | 0.7 | 0.6 | 0.9 |
| DPS (p) | – | – | – | – |
| Net cash/(debt)^^^ | 2.1 | 0.8 | 0.8 | 0.8 |
| P/E (x) | n/a | 49.7 | 57.9 | 36.8 |
| EV/EBITDA (x) | 38.5 | 24 | 19.4 | 14.4 |
| Div yield (%) | – | – | – | – |
