GCISamarkand Group: VSA Capital
Turnaround and Moving Into Profit
Samarkand Group plc (SMK ASE) has today reported a trading update for the 12 months ending March 31st 2024 (FY 2024). SMK, a cross-border eCommerce technology, services, and consumer brand group is undergoing turnaround. It is expanding revenue outside China, which had been impacted by COVID and now consumer price pressure and competition, through selling higher margin wholly owned skincare and wellness brands in Europe. SMK has reduced internal costs and today reports FY 2024 EBITDA losses reduced by 55% on FY 2023; this in line with prior guidance of £0.9m and leaving our estimate unchanged. FY 2024 revenues decreased by 3-4% on FY 2023, we estimate to £16.8m (previous est. £17.5m), on weaker revenues from 3rd party brands into China. However, SMK revenues outside China are rising and, as previously reported, in 1H FY 2024 grew by 13% to become 41% of the Group total. SMK is successfully moving the Group into profit and today reported that Q4 2024 was close to adjusted EBITDA breakeven. For FY 2025, we estimate a move to an adjusted EBITDA profit of £1.2m. This includes a £0.3m contribution from today’s announced acquisition of Optimised Energetics Ltd.
The Acquisition of Optimised Energetics Ltd
SMK today announced the acquisition of Optimised Energetics Ltd which owns natural health and healing brands Nature’s Greatest Secret and BeNatural. Optimised Energetics Ltd also manufactures premium skincare on a contract basis, including for SMK brands. The acquisition brings to SMK high potential brands and manufacturing capability. Optimised Energetics Ltd is being acquired on a cash and debt free basis, and for the year ending March 2024, generated revenues of £1.2m and an EBITDA of £0.3m. SMK is paying a total consideration of £1.3m (just over 1x revenues) comprising an initial consideration of £0.6m, supported by non-convertible director loans of £0.4m, and deferred consideration of £0.7m payable in cash over a three-year period.
Recommendation & Target Price
The shares at this price are completely oversold given the revenue from own brands, rising gross margins, reducing costs and expected move into profit during FY 2025. A lack of share liquidity also appears to be impacting the price.
We reiterate our Buy recommendation and raise our 12-month target price of £0.95/sh. (was £0.90p/sh.)
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