A.Plus Group Holdings Limited
A.Plus (‘Group’) is a provider of financial printing services to listed companies in Hong Kong. It provides design, typesetting, translation, and printing services.
It generates revenues from a) Results announcements/Financial reports (58%
of sales); b) Company announcements/Shareholder circulars (27%); c) Debt
offering circulars/IPO (11%); d) Fund documents (1%); and e) Others (3%)
Revenues to September 2020 only fell marginally as debt and stock
offerings in Hong Kong dried up compared to the previous year due to the
pandemic and geo-political concerns – but this was offset by recurring work
with results/other corporate announcements. Profits held up over the previous
year due to the receipt of $5.2m of government grants in pandemic relief.
The group reported TTM sales of $140m (2019: $147m), ebitda of $30m (2019:
$37m) and net profits of $26m (2019: $26m).
The group generated average earnings of $25-$28m and similar free cash
flows. (This is after charging rental payments to related parties of $4.5m/year.)
There appears to be stable demand for periodic financial documents,
which the group can capitalize on with its long-established customer
relationships. Therefore, we consider the past average of $25-28m to be a reasonable
estimate of future earnings.
The outstanding feature of the balance sheet is the large cash balance
of $132m and no borrowings. All liabilities were amply covered as at September
30th, 2020.
Management have generated respectable returns on capital in the past and
there’s no reason to believe they will fritter away the cash on questionable
capital expenditures.
The stock is currently offered at $174m, which is 6.5x earnings. After
backing out cash, the operating business can be had for a ridiculously cheap
1.6x earnings.
Management paid out only $10m in normal dividends in the last two years but
this was supplemented by a ‘special’ dividend of $40m last year due to the
large cash balance and lack of capital expenditure requirements. However, the
normal dividend was cancelled in the current period and a decision on the final
payout is outstanding.
Despite the sporadic payouts, there is little doubt that this business
is selling very cheaply relative to its earning power and cash resources –
particularly considering the stability of its operations.