SpaceandPeople analyst Zeus restores estimates and valuation

SpaceandPeople plc (LON:SAL) secures, sells, and manages flexible space for brand experiences, short term promotions and retailing in high footfall venues for its customers, including in shopping centres and travel hubs. The Group has issued a positive pre-close update for the half year and upbeat guidance on the outlook. Full year sales will exceed £5.5m and we forecast the business will be profitable; indeed, significantly ahead of 2021a once one-off COVID-related support payments are stripped out. Trading is recovering gradually in the UK and Germany. Pricing is holding up reasonably well, and cost lines are stable. A refreshed Rock up and Pop-up end-to-end kiosk offering, aimed at retailers wishing to re-enter shopping centres flexibly and with minimal set-up costs, is gaining good traction. We have restored estimates for 2022e, these show a good uplift in sales, gross profit and like-for-like operating profit. Cash has improved and we expect a modest net debt position at year-end. We think the current distressed state of much of the European retail sector presents many opportunities for the Group’s flexible and lower cost promotional and pop-up solutions. Our restored valuation is 220p indicating good potential upside.

Positive H1 pre-close trading update – Trading in the first half improved as customers returned to shopping centres in the UK and Germany, and train stations in the UK. Revenue was much improved at £2.5m against £1.1m in H121a. All divisions are reportedly recovering well, across the UK promotions and retail units, and in retail in Germany. Management told us that momentum gathered pace sequentially with Q2 materially stronger than Q1. A notable area of improvement was product sampling events in UK train stations. The Rock up and Pop-up kiosk roll-out has progressed well, with Braehead (Glasgow) and Lakeside (Essex) shopping centres operational; more will follow. Cash clearly has taken a hit through the pandemic but is recovering, liquidity headroom at 30 June was £1.4m (30 June 2021: £1.5m) and net debt was £1m (30 June 2021: £1.1m). COVID-related grants and furlough payments have now almost entirely run-off, this year we can properly assess underlying performance. To sum up, the Group has survived an almost complete shutdown of its business through periods of the pandemic and is recovering well.

Further progress expected to the full year – Management is confident that trading will continue to recover in H2, which is also a seasonally stronger period. That said, recovery is not entirely even. For example, pricing is firmer in activities such as product sampling (e.g., in train stations) than in still-subdued brand promotions. Through the pandemic, SpaceandPeople took the opportunity to reduce overheads (e.g., by moving to a less expensive but higher quality HQ building) but some cost is naturally flowing back in areas such as sales and sales support. As for many other businesses, cost of insurance and certain professional services are rising. That said, management is confident that expenses are under control. Overall, the Group is guiding to full year 2022e revenue of not less than £5.5m.

Zeus estimates and valuation restored – Following discussions with SpaceandPeople management we have restored our estimates for 2022e earnings. Revenue should increase by c.37% to £5.5m, with gross profit up c.14% to c.£3.2m. We assume a compression in the gross profit margin to under 60% with mix shift. Offsetting this, administration costs are likely to be lower reflecting tight control of overhead costs. Below this line (i.e., operating profit and PBT) headline profit falls, however, this is impacted by the run-off of government grants and furlough payments for COVID. Hence, for 2022e we calculate £127k of operating profit against £153k reported for 2021a. Excluding these one-off payments, 2022e operating profit is estimated at £97k, but this is set against an adjusted operating loss of (£597k) in 2021a – underlying profitability is forecast to be sharply up year-on-year. Cash should continue to recover but with loan repayments we assume a small net outflow (£245k); net debt should be a comfortable c.£343k at year-end. We understand that there are no going concern issues. We also restore our valuation; 10-year modelling of net free cash suggests a valuation of 220p, good potential upside.

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