Trade Me: AGM 2015
Recommendation
Trade Me held its annual general meeting (AGM) recently. In his opening address, chairman David Kirk said something important: 'A lot of good work has been done without too much to show for it in earnings growth'. Is this a hint of what's to come?
We think so. Early signs of improvement in the company's Marketplace business (formerly General Items) are continuing into 2016. Total merchandise sales were up 7.4% year-on-year in September, with new items – rather than used – a source of significant growth.
Trade Me's Classifieds business has been growing much faster than Marketplace in recent years. At the AGM the company announced listings growth has continued into 2016, albeit at a slightly lower rate. A slowing New Zealand economy will be something to watch, however.
The company reiterated its guidance for 2016, with revenue and earnings before interest, tax, depreciation and amortisation (EBITDA) growth likely to be similar to last year (in 2015 the numbers were 11% and 4% respectively). Importantly, cost growth should slow in the second half, making that period 'considerably stronger'. This implies 2017 earnings growth should be higher again (all things being equal).
The stock has now jumped 21% since Trade Me: Result 2015 from 20 Aug 15 (Buy – $2.91) when we said 'the stock is one of our better buying opportunities at present'. That makes it less attractive of course, although it's still decent value (as it was when we upgraded around the current price in early 2014). Trade Me remains a BUY.
Note: The Growth Portfolio and Income Portfolio each owns shares in Trade Me.
Disclosure: The author owns shares in Trade Me.