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HighCo, a gradual return to normal

Unsurprisingly, the health crisis had a heavy impact on the business performance of this marketing and communication specialist in the first half of 2020. The reduction in investments by brands and distributors could still weigh heavily in the second half, but the digital offer should back off.

by Aymeric Val

After the strong rebound in indices over the past four months, finding opportunities on the stock market has become difficult. To achieve this, it is sometimes necessary to take risks, by venturing off the beaten track. With its attractive growth history, undemanding valuation multiples and reassuring balance sheet, HighCo is clearly one of the files that deserve attention. More than 30% away from its levels at the start of the year, the title of this player in data marketing (reduction coupons, loyalty programs, etc.) and communication is lagging behind the CAC Mid & Small. The explanation? This firm depends a lot on distribution (food and non-food), the difficulties of which we know. Due to the health and economic situation, the first six months of the year were difficult for the company chaired by Didier Chabassieu. Over the period considered, the gross margin (which measures the net business volume) fell to 40.42 million euros, down 16.1% compared to the first half of 2019. The only second quarter, which was concentrated the impact of containment on activity, resulted in a decrease of 21.6%. It should be noted that HighCo did less worse than expected in this first half of the year, thanks to a month of June in catch-up mode (+ 2.7%), driven by France and digital. In addition, the expected results for the first half of 2020 are far from catastrophic. The company expects an adjusted operating margin of around 17% (compared to very high profitability of 26.4% last year at the same time). Not enough to make jaundice out of it.

A proven business model, even in times of crisis

And the outlook? Cautious, the group is betting on a decline in its activity in the second half of the year of at least 5%. HighCo believes that budgets will be cut or redirected at certain customers. This of course does not call into question the merits of the strategy. Already carrying out a large part of its activity in digital and mobile, the group should suffer less than other providers of brands and distributors of health rules. In times of economic scarcity, promotions and customer loyalty campaigns are bound to become more intense, which will have a positive impact on the coupon issuance business. In any case, 2021 is shaping up to be the year for the business to return to normal. The net result could rise to 8 million euros, according to our calculations. An estimate capitalized 12 times at the current price, which is far from exuberance. To correctly understand this valuation, it is also necessary to mention the quality of the balance sheet. At the end of December 2019, the net cash surplus amounted to 62.38 million euros, for 89.4 million euros of equity. Excluding net working capital resources, HighCo posted gross cash of 10.56 million. Since that date, this financial situation has hardly changed despite the epidemic, with gross cash still standing at around 10 million, for a net cash surplus of 72 million. That says a lot about the model’s resilience. The group is a real “cash cow”, which the stock market trajectory does not reflect. For this reason as well as for the speculative dimension (WPP could be tempted to launch an offer aimed at minority shareholders), we are still positive on this recommended value at the end of March 25% lower.

Our advice: take a stand or complete the HighCo line at 4.15 euros. A return to 4.75 euros is a reasonable first objective. Isin code: FR0000054231.

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