Microlise Group – still a lot to go for despite its very high P/E

Unusually for me I am today featuring a very high price earnings ratio stock, on some 55 times the estimate for its 2021 earnings.

However, this company is a leader in its specific sector, with a 58% hold on its market.

It also has a 64% recurring revenue and that is growing.

The business

The Nottingham-based Microlise Group (LON:SAAS), which was set up in 1982, provides solutions for transport companies.

That is not as boring as it sounds.

With additional offices in France, Australia and India, its total workforce is over 600.

Its products and services help to automate and optimise critical processes such as scheduling, routing, driver performance monitoring and resource allocation.

By providing this valuable and actionable real-time data its customers are helped to improve their efficiencies, lower costs, enhance safety and reduce emissions.

Software as a Service

The group’s ‘software-as-a-service’ platform effectively digitises the business processes of enterprise organisations running highly complex logistics operations.

The improvements that it gives are delivered through reduced fuel use, reduced mileage travelled, improved driver performance, fewer accidents, the elimination of paperwork and by boosting customer experience.

Fleet operators with of over 500 heavy goods vehicles are very keen on the group’s kit.

It has a diverse range of customers, over 450 of them, like haulage and logistics operators such as Eddie Stobart, JCB, MAN Truck and Bus UK, Hovis etc – all are big users, as too are over 88% of the UK’s grocery retailers.

It also has well over 500,000 vehicle subscriptions.

Key UK role in logistics

As a result of its leading position in the market, Microlise plays a key role in UK logistics sector, as well as collaborating with industry bodies.

For example, the group’s annual ‘Microlise Transport Conference’, is one of Europe’s largest road transport conferences with over 50 exhibitors, 35 speakers and some 1,100 attendees.

The annual event has previously attracted speakers from the likes of Google Cloud, Amazon, Innovate UK, The Senior Traffic Commissioner, the Road Haulage Association, as well as Her Royal Highness The Princess Royal, in her capacity as Patron of Transaid.

The equity

The group only floated on AIM in July last year when it Placed 13.78m new shares @ 135p for the company and 31.52m shares for vendors.

There are nearly 116m shares in issue, of which the CEO Nadeem Raza holds 50.02%.

Other large holders include Liontrust Asset Management (7.70%), BGF Investments (5.11%), Robert Harbey (5.0-0%), Columbia Threadneedle Investments (4.60%), Canaccord Genuity Wealth Management (4.48%), Roy Allum (3.70%) and Ninety One Asset Management (3.12%).

Brokers View

The next Transport Conference event will be on 18 May but before that we should be getting an update on just how well the group traded last year. Thereafter we will have to look forward to 30 April this year to see the full publication of its 2021 results.

Analyst Kevin Ashton at Singer Capital Markets has estimated that the group’s full year to end December last will have seen revenues of £59.1m, generating £4.3m adjusted pre-tax profits, worth 3.7p per share in earnings.

For the current year he goes for £68.7m revenues and £5.9m profits, giving 5p in earnings.

My View

This group really does have the potential to cross-sell its products and services and with over 12% of the entire HGV market already under its belt there is so much more to go for, the upside is massive.

The group’s shares, which hit a High of 254p late last September, are currently trading at around the 200p level.

I now set a 2022 Target Price of 240p.