However, despite making progress with revenue and profit rises, as well as improving its balance sheet, shares in the company are down around 10% over the past 12 months. 

Maiden profit 

The contrast between Minds’ share price performance and the underlying business performance could not be more different. During 2017, the number of domains under management by the group grew 67% to over 1.32m and billings jumped by nearly 100% against the first half. A billings figure of $10m was reported, compared to $5.6m for the six months to June 2017. Total billings of approximately $15.6m are now expected for the full year.

After a strong performance in 2017, Minds, which describes itself as “one of the world’s leading owners and operators of Internet Top-Level Domains,” is now profitable for the first time in its history. This is a huge milestone for the business and marks the beginning of a new chapter. According to today’s update, for the first time, recurring income from subscription services now exceeds operating costs “which have been reduced to below $5.5m for 2017.” 

For the full-year management is now expecting earnings before interest, tax, depreciation, and amortisation to be “slightly ahead of market expectations.” Meanwhile net cash on the balance sheet had improved to $15.9m at year-end (up $0.6m year-on-year), “despite settling $3.1m of balance sheet liabilities in the year associated with contracts restructured in 2016.“

All in all, it looks as if Minds has exited 2017 with a stable core business that’s primed for growth in the years ahead. 

Time to buy? 

I’ve been following it for the past year. After the company reported its half-year figures at the end of September, I claimed that once the firm published its maiden profit, the market would view the business in a different light and hopefully re-rate the stock. With the shares trading higher by 20% in early deals this morning, it looks as if this is indeed the case. 

And it looks as if the shares are still undervalued despite today’s gains. 

For example, City analysts are currently expecting the company to report revenues of £13m for 2018. The tech sector is currently trading at an average price-to-sales ratio of four so placing this multiple on sales gives a market value of £52m, excluding cash of around £11.1m. 

Including cash, the company should be worth £63m compared to today’s £57m. However, considering the high double-digit sales growth rate Minds has achieved in the past, I believe that City forecasts are understating the group’s potential. What’s more, as I covered in April last year, management has been active in returning some of this to shareholders, and I wouldn’t rule out additional cash distributions to boost returns over the next 12 months. 

The post Could Minds + Machines Group Ltd make you a million in 2018? appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

However, despite rising sales, profits have remained elusive, but it looks as if this is about to change. 

Maiden profitability 

According to the company’s first-half results published today, renewal billings nearly tripled to $3.1m while renewal revenue more than doubled and now accounts for 45% of revenue, compared with just 15% in the same period last year. This growth means that renewal billings are now higher than fixed operating expenditure, which came in at $2.6m for the first half. 

Heading into the second half, MMX is primed for further growth as management has decided to hold back key 2017 inventory releases. Billings eased to $5m from $8m the year before. However, sales of roughly $6m have already been achieved during the third quarter, bringing year-to-date sales level with 2016. Commenting on the results the firm said: “The first half of 2017 has been a period of consolidating the transformational progress of 2016 and establishing a solid platform for the business to deliver its maiden year of profitability as an operating business in the current year.“

With $15.3m of cash at the end of August, MMX has a strong balance sheet to support growth. I believe that the market will re-rate the shares when the company reports its maiden profit. 

Hidden from view 

Time Out Group (LSE: TMO) went public in mid-2016 but has so far failed to attract attention from investors. Indeed, the shares have barely budged over the past year. Nonetheless, I believe it’s only a matter of time before the market catches on to the opportunity here.

Time Out owns the Time Out magazine brand and a string of food markets. With a global monthly audience of 242m, the group has a huge base of customers and viewers to try and sell its offering to. What’s more, this audience is multiplying, up 77% year-on-year for the first half of 2017. 

Unfortunately, this growth is proving costly. The group’s pre-tax loss rose to £16.3m for the six months to the end of June, up from £8.5m in the year-ago period. Revenue increased by 13% to £18.7m from £16.6m. In the Time Out Market business, Miami is set to open in 2018, with a lease agreement close to completion in a second major city and the group considering new global locations. With approximately £30m cash on hand at the end of the first half, Time Out has plenty of funding to fuel further growth. 

City analysts are expecting the company to break even in 2019. Losses of £19.5m are projected for full-year 2017, falling to £4m for 2018 as revenue expands from £45m to £69m. If sales continue to expand at this rate, shares in Time Out will warrant a growth multiple as profits start to grow. Based on current gross profit margins, I estimate that the firm could achieve a pre-tax profit of £10m or more by 2019, indicating that today the shares are trading at a 2019 pre-tax multiple of 20. This looks too cheap to me. 

The post 2 ‘secret’ small-cap stocks offering the perfect blend of value and growth appeared first on The Twelfth Magpie.

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Rupert Hargreaves does not own shares in any company mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Minds provides internet domain names, which is a highly lucrative business. For the first half of 2016, the company reported a gross profit margin of 86% on billings of $8.1m, up 300% year-on-year. Margins have been significantly improved by management’s decision to move to a lean pureplay registry business, able to operate incisively across three time-zones. Operating costs fell 27% year-on-year for the first half of 2016 and are expected to fall further in 2017. Management is targeting an operating cost base of $6m for 2017, down from an annualised $7.2m based on first half 2016 figures. 

Set for further gains? 

Looking at the figures, it would appear that shares in Minds are set for further gains throughout 2017. For the first half of 2016, the company actually reported a small pre-tax profit of $0.1m, and trading continued to gain traction during the second half. 

Indeed, at the end of January, the company indicated that total billings of $15.8m were achieved for 2016, compared to $7.9m for 2015. The trading update also revealed that operating costs are now below management’s targeted level of $6m. Initial figures put operating expenditures at $6.8m, including $1m of non-recurring restructuring costs. After stripping out this one-off cost, the operating expense run rate declined to $5.8m. 

Moving in the right direction 

Topline figures show Minds is moving in the right direction and a further analysis of the figures supports this conclusion. 

At the end of 2016 the company had just over 800,000 domains under management, and renewal billings for the year increased by 116% to $3.8m, providing a valuable source of recurring revenue for the firm. Management is targeting sales of 1m of its .vip domain names by the end of this year, up by more than a quarter since the end of 2016.

It is clear that Minds is moving in the right direction and for 2017 the company should report a decent level of profitability. Its cash balance is also attractive. 

Cash is king 

At the end of the first half of 2016, the company reported cash and cash equivalents of $29.1m giving a solid cash balance if things don’t go to plan. Management has been active in returning some of this to shareholders. At the end of September, returned £13m via a tender offer. Alongside the offer, the company announced a private subscription to issue China-based Goldstein capital with 42.3m shares for a consideration of £5.5m, overall a net benefit to investors.

The bottom line 

So, could Minds double by the end of the year? As with all small caps, it’s difficult to predict where it will be in the years ahead. 

However, Minds looks as if it’s on track to report a healthy profit this year. Assuming the company does not have any unforeseen issues, there’s no reason why the shares cannot rise substantially from current levels in the months ahead.

The post Could this growth stock double by the end of the year? appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.