News blog
DM Group
- BY: Andrew Hore |
- POSTED: 05/03/2008 |
Scratchcard games organiser and database compiler DM Group continues to generate significant amounts of cash.
Last year it moved from net debt of £6.5m to net cash of £219,000. DM did raise £1.84m from a share placing during the year but this still means that its operations generated nearly £5m in cash – and that was after £292,000 was paid in dividends. It was boosted by positive working capital movements but even excluding them £3m was generated.
There are worries about the quality of earnings of this type of business but DM has consistently generated profits and cash. It is difficult to ignore cash generation of this magnitude. According to house broker Blue Oar, DM should have net cash of £9.36m at the end of 2009 after paying out more than £1.1m in forecast dividends.
That means that more than £9m of cash will be generated in two years. At 15.75p, the shares are trading on five times forecast earnings and DM is capitalised at £23m. There aren’t many companies that could generate cash equivalent to nearly 40% of their market value in two years.
The dividend of 0.3p a share looks modest compared with this cash generation but boss Adrian Williams believes that there could be a number of deal opportunities under the present economic circumstances. He wants to retain cash to take advantage of them.
It wasn’t as if last year was a particularly good one. TV phone-in scandals and postal strikes held back the business. Acquisitions helped DM increase its profits from £3.52m to £5.04m in 2007.
Longer-term, exploiting the database of players will be the fastest growing area. The database has more than 7.5m names. DM has partnerships with financial services companies, such as AXA and Cornhill.
The use of mobile phones, particularly texts, and the internet is an increasingly important source of revenues for the games business. Exisiting players are spending more on competitions.
One of DM’s players recently won £1m. The £1m payout is insured so it didn’t cost the company anything and gave it pages of free publicity in newspapers and magazines in the UK and Ireland.
This year has started well and Blue Oar forecasts profits of £6.47m.
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