Venture: UK Small Cap
Issue 3;
An undervalued UK high-growth company that is innovative and that generates strong cash flow. It is buying back its shares at a low price.
Team Internet Group (TIG) - recently changed its name from CentralNic (CNIC)
TIG is a leading internet solutions company that floated on AIM in 2013 with $4m of sales. It has subsequently ballooned to $728 million through organic growth and 45 acquisitions.
TIG was an internet domain business but morphed into a global online marketing business. They claim to “match the right sellers with the right buyers”. This change in focus has triggered the recent rebranding exercise. Most sales come from Europe (83.5%), but they have a presence elsewhere.
TIG’s growth really started to pick up in 2018, and since then, free cash flow has ballooned from $7.7 million to $68.4 million last year. You might assume a hefty rating would follow, but it hasn’t. The shares trade on 7.7x, and TIG is buying them back at a pace, and they have the means to do it. Admittedly, the forecast growth rate is set to slow, but the analysts covering TIG have an average price forecast of 260p, twice the current price.
The main shareholder is Kestrel Partners, who holds a 24% stake. They are a UK small cap specialist technology manager with a great track record. That caught my attention, especially as TIG is their biggest holding, and they recently added to their position.
The shift from domain to marketing has been a paradox as sales have surged while margins have contracted. That is the nature of the shift in strategy. The bull case is that they have leading technology created by teams in Tel Aviv and Germany. The bear case is the growth will stall.
The conundrum is why such a great stock, with good cashflow, trades so cheaply. The answer might be that the market doesn’t understand online marketing as it is not seen as a growth business when perhaps it is. The earnings per share expectations have been steadily rising since the refocus and haven’t missed a beat. What is most striking is that they went up throughout 2022, a dark year for tech, when most other related stocks slumped.
Positive Revisions
TIG’s management is clearly frustrated by the low rating, so the shift from acquisition to buybacks makes sense. That should improve the rating, and there is never a better time to buy shares than when they are undervalued.
I am excited about TIG. It is a UK market classic that has gone unnoticed.
Risk
TIG is a UK small cap. The shares aren’t particularly liquid, averaging £1 million per day over the past month. Yet the company is profitable, and the balance sheet is strong. I would deem TIG to be medium to high risk.
Please let me know your thoughts by emailing me at charlie.morris@bytetree.com or tweeting me @AtlasPulse.
Many thanks,
Charlie Morris
Editor, Venture
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