Altitude Group – Aiming Smarter Creates Big Potential

Announced a week ago, the Pre-Close Trading Update from the Altitude Group (LON:ALT) informed the market that its results will be at least in line with market expectations.

The results will not be published until the end of next month, however the shares appear to offer some good upside.

The Sheffield-based group’s main strategic objective is to provide a leading marketplace for personalised products in both the USA and in the UK.

It also has its US headquarters in Philadelphia.

The Marketplace

Pre-pandemic, the market for promotional products in the US was estimated to be worth approximately $28bn per annum.

Approximately 76% of transactions are carried out offline.

However, that percentage increases to approximately 90% for smaller distributors who comprise approximately 42% of the market.

Additionally, it is very fragmented with some 4,000 suppliers and 22,000 distributors serving a very broad customer base spanning individual consumers to very large corporates and non-profit organisations.

Today, the industry has emerged from the pandemic and is both resilient and growth oriented.

The Business

Altitude Group owns and develops the largest suite of technology services tailored to the personalised product marketplace worldwide.

The company offers patented technology platform to its network with a built-in supply chain, as well as combines an e-commerce trading platform with a cloud-based CRM and order management system for business intelligence requirements; e-commerce website solutions with in-built patented online designer and pre-loaded product databases; patented online design solutions; and virtual sample services that allow personalised design on a product with imprint technique.

It also provides various services, such as supplier relations, negotiated group discounts, events and exhibitions, catalogues, artwork services, and marketing programmes.

In addition, the company provides various design tools, applications, and web site pop-up stores for promotional product distributors and suppliers.

Major Contract Wins

In late March, Altitude announced that it had continued to grow its footprint across the US via its Merchanting programmes with the signing of multiple new significant contracts.

The multi-year contracts will generate throughout their 5-year terms, an expected total combined gross revenue value of some $30m, including $8m signed and subject to State clearance.

All the new contracts are expected to begin generating revenue for the group in the first half of the current financial year to end March 2024.

The revenues generated will be in addition to the $1m gross annualised revenue already expected for FY24 under existing Adjacent Market Programmes contracts.

These wins have a material impact on the group and demonstrate the success of the group’s investment throughout the last financial year in the development and growth of its pipeline, yielding positive results across its Merchanting Programmes.

The company has stated that a number of other major contracts of material value are in late-stage legal negotiations.

CEO Nichole Stella stated that:

“We are pleased with the continued momentum and positive start that we are experiencing in the early days of our current financial year.

Management is focused on execution and delivery across all programmes, with particular attention to the roll-out of our disruptive AMPs.

The Board is confident that the addition of AMPs to our business model, and managements track record in delivering growth, present a strong investment case to investors.”

The Equity

There are some 70.85m shares in issue.

Larger holders include Martin Varley, Dir, (14.2%), Simon Taylor (13.4%), Keith Willis (9.49%) Stonehage Fleming Investment Management (6.10%), M J & M C Murphy (5.93%), Hargreaves Lansdown Asset Management (5.51%), Chelverton Asset Management (4.90%), AJ Bell Asset Management (3.63%), Charles Stanley (3.11%) and Peter Hallett, Dir, (1.83%).

Brokers’ View – Discount To Intrinsic Value

Analysts Andy Hanson and Carl Smith at Zeus Capital recently updated their forecasts for both the last year and the next two following.

Their estimates for the year to end March 2023 show revenues having lifted from £11.9m to £17.9m, helping its adjusted pre-tax profits to leap nine-fold from £0.1m to £0.9m, more than trebling earnings from 0.5p to 1.5p in the process.

For the current year now underway and taking benefit from the new contracts, they estimate a near 50% uplift in sales to £26.1m, with £1.3m profits and 1.7p earnings.

Looking into the 2025 year they see £35.6m sales, £2.2m profits and earnings of 2.5p per share.

The brokers consider that Altitude’s shares are trading at a discount to intrinsic value. They value the shares at 57.4p each.

My View – Ready To Gain Altitude Again

It is hoped that we may hear more positive contract news over the summer.

This little £30m capitalised company is well positioned for rapid growth, which its shares will soon reflect in an upwards direction.

Four years ago, the group’s shares were trading almost three times higher than the current price.

After having peaked at just 49.99p just three months ago, the shares now at 41.5p could well be ready to run higher again.

Ahead of the July finals I now put out an easy Target Price of 50p.