Summary Marlowe Plc is LSE AIM listed UK compliance company. It’s building a one-stop compliance service platform through buy-and-build strategy. It focuses on the fragmented, GBP 8bn+ UK compliance market with 5-10% market share in the various sub-sectors. The business is recurring in nature and counter-cyclical, as it provides non-discretionary, mission-critical service to enterprises. Through its one-stop model, Marlowe’s strategy is to grow organically at HSD through cross-sell and up-sell, while bolt-ons could contribute extra MSD to HSD topline growth.
Great pitch ! Agree - this looks very interesting. Have you gathered any incremental information good / bad since posting this that you think is worth mentioning? Have your views on the stock changed at all?
I would suggest that you don't take the numbers that the management put out in its financial literature and run some of your own analysis. Adjusted Net Income and Adjusted EBITDA are simply ways for the management to say "We don't want you to look at this and we don't want you to look at that. Ignore the ugly numbers and everything looks just rosy!"
The share count is increasing at a rate of over 30% CAGR. That means that shareholders are being diluted by approximately 25% every year. So the value of the business needs to increase by that amount merely to keep your head above water as an investor (very few companies grow at that rate sustainably).
Top line revenue is growing, but it is all acquired sales. Anyone can buy another company and bolt on its sales. The trick is getting it at the right price so that it is accretive for shareholders. Return on invested capital in real terms is negative and getting worse. Asset turnover is in decline. Leverage is increasing. Net CAPEX is running at well over 150% of gross profit. Stock based compensation is more than 7x net income (so the management are taking out more than the business is producing).
Am I missing something here?
You say in your article "Alex Dacre... manages capital allocation and M&As with a bunch of youngsters"
I think that sums it up nicely. Perhaps its time to hand the management over to the adults!
Just out of curiosity, how did you find this stock?
Interesting story. Why is the group not generating cash-flow? (cash from operations represents only a fraction of EBITDA over the last 3 years, and is almost fully offset by costs capitalised) On paper the assets they have been assembling should be very cash generative?