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New to Yü

Yesterday I was doing some research into Eve Sleep and stumbled across Yü Group. Can you guess what first intrigued me about the company?

We all like a momentum play, but I aspire to be a value investor. So I rolled up my sleeves and started reading about the company (that many seemed to know about already). Here are some key things that I found:

  • Yü Group raised £11.6m in March '18 with a share placing 
  • They ended the year with £9.7m more cash than Dec '17. 
  • As such they burnt £1.9m of the new placing money.
  • They have no debt
They look on track to make £88m to £100m revenue in '19 on a single digit margin north of 7.3%
Let's say this is 8% on £100m. That's £8m gross profit.
Current marcap is £38.26m
8/38.26 = 20.9% gross profit to marcap at 237p

In 2017 Yü Group made £6.818m Gross profit on £45.6m revenue. After costs and tax the profit for the year was £711,000 or 5p per share.

In 2018 Yü Group made (£5,873) gross profit (i.e. loss) on £80.6m revenue. After costs and tax the loss for the year was (£6,267) or 42p per share

Preliminary results for 2017 were released on 6th March 2018. By 9th March 2018 the share price peaked at 1235p. For the next six months it was around 1000p. Let's call it 975p for the following calculation.

975p gave Yü a valuation of £157.6m in Sept 2018. Dividing their '17 gross profit into this gives:
6.818/157.6 = 4.33% gross profit to marcap at 975p

As this business scales they are taking on less risk with their new contracts, and the booked revenue each month will likely be lower. However, the book of business stands at an average contract term of 22 months at the moment, so Yü will benefit from scale as it grows the client list and products they have to offer. (In Dec 2017 the average contract term was 18 months)

On the face of it you can buy (20.9/4.33 = 4.8) nearly 5 times as much gross profit per share today compared to 8 months ago in September when the share price was 975p.

The CEO just bought 4000 shares on Thursday at 207p (£8k cost). He now owns 53.2% of the company. 84.94% of the shares in the company are owned by 10 individuals / organisations. As such there is only 15.06% of the company or £5.76m available to trade. 

The Total Voting Rights (number of shares) is 16,267,555. As such 15.06% of this is 2,449,893 shares. In the last 3 trading days 3,961,013 shares have been traded. Undoubtedly there has been some profit taking. Possibly one of the shareholders listed on the company website may have trimmed their holding; if so we will likely see an announcement next week. If not, then that's quite a hot turnover of shares for 3 days.

This week Yü Group also re-stated its results for 2018 and announced that the Financial Conduct Authority has decided to discontinue its investigation.

The company is unlikely to quickly get back to parity with its valuation of 975p just 8 months ago, but on a like for like basis, assuming £8m of gross profit this year the shares could trade at 4.8 x 237p which is 1,137p.

Perhaps by this time in 2021.

Please do your own research and don't take this as investment advice. I own shares in Yü Group and Eve Sleep.

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