Direct Line Insurance Share Discussion Threads

[stacks] 20/7/2006 10:44

A lot of trades at the end of the last few days through at 10.75. Of the larger orders thats about 2M. Guess they were buys..

[10past3] 19/7/2006 09:16

Rather extreme drop... on little volume and no news.

[silverfern] 12/7/2006 10:09

I'm analytical - it saves me money. IN what way am I wrong in my assessment?

[gazza12] 12/7/2006 09:24

So cynical silver and so wrong.

[silverfern] 12/7/2006 07:45

A large % of its business is done by others, at lower margins to its own staff. THis equals lower margins - those are the two salient points from today's statement. In other words, expect bigger losses when results are delcared in Sept. Hence of course the need for life-saving funding last month.

[gazza12] 28/6/2006 11:58

Price been inching up over the last couple of days. Very cheap in my opinion.

[mo123] 22/6/2006 12:17

So why did they have to raise money from institutions at only 8p if the outlook is so rosy?
Will the basic EPS be near 1p? I doubt it.

[jimcar] 21/6/2006 16:10

ARGY2

It's in the 6th para down


*This report cannot be regarded as impartial as GE&CR has been commissioned to write it by Delling. However the estimates and content of the reports are, in all cases, those of t1ps.com Ltd.

[nothinventured] 21/6/2006 12:50

ARGY2

that would be advertising and I'd probably get kicked off here.

[argy2] 21/6/2006 12:48

nothingventured

Where's the bit about the write up being commissioned by the Company and written by a company owned by a tipsite group??

[polyanna] 21/6/2006 12:07

Another member of the Downhill Only Club

[andyconstanti] 21/6/2006 12:04

This company is a loser.......... will go nowhere

[nothinventured] 21/6/2006 09:59

Delling Group - Buy at 9.5p

Key Data
EPIC DLG
Share price 9.5p
Spread 9p-10p
Year's range 7.5p - 22.5p
Shares issued 133.7 million*
Market Cap. 12.7 million pounds*
Market AIM
Sector Consumer services
Contact Aksel Bratvedt 02074845663
Website dellinggroup.com

*Post Placing
This is our second annual review of Delling Group under the Growth Equities and Company Research banner, having initiated coverage of this stock on 21 April 2005. The company yesterday announced results for calendar 2005, accompanying them with an upbeat trading statement and a 4.7 million pounds placing at 8p which resolves any balance sheet concerns that investors may have had. Sales have not come through as rapidly as we had initially hoped but are now doing so at an accelerating pace making this a growth stock on a lowly rating - our stance is buy.

Delling is a small, fast growing company (sales have increase nearly tenfold since 2003) with a well defined and achievable strategy, driven by its consolidation through acquisition, of parts of the fragmented marketing services industry in Scandinavia; an economically and commercially vibrant region and a significant part of world GDP and growth. To its many blue chip corporate clients, it is the outsourced supplier and in a limited but growing number of cases, external manager and agent of all marketing resources and services.

Although calendar 2005 saw another dramatic increase in sales there was also increased investment in the development and shaping of the business for future profitability. Despite failing to make the expected breakthrough to operational profitability last year as forecast, the company is expected to produce operating and net profits during the current year ending 31 December 2006. The strategy of growth through management, acquisition and cross selling is clearly working. Furthermore, there is now a policy to reduce unnecessary costs in line with expansion.

In consequence, we are forecasting earnings per share of 1p in 2006 rising rapidly to 1.9p in 2007 - the tax charge in both years will be nil. We believe that these forecasts are conservative and realistic.

At the current price of 9.5p Delling's shares are selling on 9.5 times this year's estimated maiden earnings, dropping to 5 times next years estimated earnings. With strengthened financial management, a revitalised balance sheet and evidence of a successful strategy, the shares look undervalued and our stance is buy.

*This report cannot be regarded as impartial as GE&CR has been commissioned to write it by Delling. However the estimates and content of the reports are, in all cases, those of t1ps.com Ltd.

Year to
31 Dec Sales
(million pounds) Net profit(loss)
(million pounds) EPS (p) DPS (p) PE Ratio Yield (%)
2004A 2.17 (2.80) (6.74) nil - -
2005A 5.31 (2.99) (4.44) nil - -
2006E 11.5 1.05 1.0p nil 9.5 -
2007E 23.0 2.5 1.9p nil 5 -







Background

The changed and changing marketing services sector in Scandinavia.

The arrival of digital information technology is the catalyst that has made marketing more complex and managerially challenging. It also gives Delling the opportunity to pioneer a new marketing support service. For those that have acquired the technology and skills - as Delling has, making it Scandinavia's state of the art quality print and photographic image provider - opportunities in this media segment are increased. The sharpest high quality large sized printed and photographic images in Scandinavia now appear under the new Delling brand name which covers all the company's activities. Until last year, the Delling presence was diluted by the use of several separate divisional brand names.

The arrival of screen-based technology, again arising out of digital technology, is transforming retail marketing. Its various commercial implications are only now being slowly recognized and evaluated. It offers a different, more imaginative use of retail store layout; an area in which Delling provides advice to store mangers. It allows for interactivity and real time control of messages beamed to customers, so they can be changed swiftly to take account of time of day, stock position, sudden changes in weather or any other relevant altered circumstance. Logging on to Delling in Stockholm from a particular site in any part of Scandinavia will permit an immediate change in content, 'there and then', radically raising retailing efficiency.

Moreover, for the first time there is an empirical measure of promotional cost against sales revenue gained. Delling has the skills to manage the continuity of format and images from print to screen as content is shared between competing media forms. Until now, Delling has invested in developing screen services for clients with precious little in the way of revenue with which to recover such costs. There are currently 15 Delling screen pilot projects being evaluated by leading Scandinavian multiple site retailers. The expected conversion of any one of those in the near term to a commercial management and supply contract would mean a significant increase in Delling's revenue, profitability and market standing.

Delling's growth is driven by earnings enhancing acquisitions which bring market exposure to additional product lines, skills and new clients. It translates into cross selling opportunities for an increasingly wide range of services and products and therefore, a changing and more profitable relationship with individual clients of which Delling now has more than 300. It is a policy making the sum of acquisitions of much greater value than the individual parts.

More acquisitions are expected. The number of customers awarding valuable contracts to manage and supply all their marketing resource needs - one of the company's strategic aims - is growing. The full implication of the recently announced Bristol Myers Squibb contract goes beyond its useful size of 500,000 pounds. First, it is Delling's first contract which was placed with company on a full pan-Nordic basis in contrast with the usual national basis. Second, it presents enormous cross selling and perhaps full service potential.

This financial year to 30 December 2006 should see sales revenue large enough to recover all group costs and produce the company's first net profit, since Delling's incorporation in October 2004. We expect earnings growth thereafter, driven by more cross selling revenue and increasing numbers of exclusive management and supply contracts. The conversion of screen pilot schemes has the potential to increase sales and earnings considerably this year and next. Delling is in the process of establishing itself as a wholly reliable agent for its clients' critical marketing mission. That takes time. The recently-announced McDonald's and Northface contracts are now evidence of its capacity to do so. Meanwhile, more earnings enhancing acquisitions are in the pipeline. The placing announced yesterday provides the financial muscle for a number of deals which we believe to be imminent and which could enhance earnings for both 2006 and 2007.

An outline of recent progress.

Delling's management has made solid progress in growing its business. Delling has consolidated the acquisitions made last year which now operate under the Delling brand name. Those included Unkium Professional Imaging (the enhancement of photographic images for high quality posters) and Andre Worlwide Visual Communications (specialist supplier of exhibition stands).

Delling has made additional acquisitions since then: last June 2005 it absorbed FulBredde AS, a company supplying printed marketing materials to a strong client list. At a purchase price of 300,000 pounds Bredde was acquired for less than three times pre tax profits and at about one third the value of recent annual sales. It also brought net assets of 20,000 pounds.

This was followed in January 2006 by the acquisition of n3prenor, a private company specialising in the production of high quality company reports and accounts and documentation. It has a blue chip Scandinavian client list and brings new products and skills to the Delling span of commercial activities. Over 90% of the acquisition was made in cash through bank borrowing facilities. Paying less than one times annual revenue of 2.0 million pounds, and four times pre-tax profits of 400,000 pounds, we believe the deal to be earnings enhancing.

All these acquisitions were made in accordance with the strategic acquisition criteria described below. Also of great significance, was the announcement in January (in accordance with the company's strategic aim of establishing itself as a comprehensive supplier of all marketing support services to companies) that it had won such a contract from McDonald's in Norway. Delling's enlarged staff and operations in Oslo and Stockholm were recently relocated to new operationally advantageous premises with the capacity for expansion. In short, Delling is showing evidence of growing fast, with greater internal operational coherence and a sharply defined market presence in Scandinavia under the Delling trading name. Moreover, the most recent acquisitions show that Delling is still able to find the right kind of takeover targets in Scandinavia at low multiples of annual profit.

This supports the expectation that Delling will continue to grow the critical mass and competitiveness of the Delling market offer over the coming years. On the high streets and in the shopping malls of Stockholm and Oslo, there is palpable evidence of the skills and services now deployed by Delling which have come through recent acquisitions. The quality and attraction of Delling's photographic and large scale printed images are strikingly displayed in a growing number of sites. To this may be added a growing number of electronic screen based products procured, installed and managed by Delling.





Strategy

Delling's growth strategy is founded on three propositions:

First, that it can increase its customer base, revenues and shareholder returns through a continuing policy of acquisitions on equity enhancing terms. The placing announced this week will acclerate that strategy.
Second, by gradually persuading its increasing number of clients to rely fully on Delling for the provision of the full range of marketing support services.
Third, by gradually expanding its commercial activities in countries and markets which geographically and historically have strong economic links with Norway and Sweden.
Fourth, that it will win jobs and accounts simply by being in the marketplace as a branded, increasingly known supplier.
For a better understanding of Delling's business, it is emphasised that Delling as a market support services company is not an advertising agency and does not do the kind of things that such agencies do. Nor does it wish to do the work of advertising agencies which is complementary and requires a different culture, and would moreover pose unhelpful conflicts of interest between clients. In Norway Delling works for both McDonald's and Burger King as well as a local burger company. A client uses an external advertising agency for selling and marketing ideas and the creative graphic and pictorial representation of those ideas. They go to Delling for the most efficient technical and economic means of producing those ideas and graphics, in volume in a growing variety of media formats. If advertising agencies have a wholly creative function then Delling gives supporting services of a largely but not wholly technical, financial and economic kind, by giving appropriate and faithful large scale, multi site, multimedia expression to the creative ideas of advertisers.





Operations

Delling's services.

Changing technological possibilities driven by digitalisation have given corporate marketing departments two things: access to greater marketing power and the headache of keeping up with such change and using newly arrived and arriving multimedia technology in the most efficient and imaginative ways.

Delling's ultimate mission is to persuade senior company managers that the organisation and provision of economic marketing resources can be best and most economically done by Delling acting as the company's contracted external manager of all its multi media needs.

Delling's span of specialist services include :

The planning and management of exhibitions;
The procurement of marketing products and materials;
Supplying the highest quality, volume photographic image production in large and small size;
Supplying the highest quality, volume print production in large and small size on a range of materials most suitable to a given marketing objective.
Supplying, installing and managing screen media, including the skilful adaptation of other media content for screen projection and the "real time" remote control of content.
Supplying, installing and managing technology of the moving image marketing.
Supplying, installing and managing mobile/radio communications for marketing purposes.
Delling is developing, staffing and managing software which allows a client company to integrate the process of creating a marketing programme within one discrete system which allows marketing assets ( i.e. ideas, information, copy, graphics etc) to be accessed electronically by a client's own staff and external advisors, ensuring full traceability and security of assets.

Economies of scale.

Delling's full external management service is sold to companies on the commercial basis of the benefits of economies of scale. These include: the shared cost advantages of buying power which Delling enjoys increasingly as a dealer and multi-client operator; the range of Delling's portfolio of specialist services, skills, 'knowhow', insight and experience and by using outsourcing, the opportunity to arrest or eliminate a client company's own internal marketing cost base. Finally, affording companies greater freedom to focus on their core activities (e.g. retail management, airline management, petrol station management, utility supply etc.) These advantages cannot be matched by individual companies on an economic basis, if at all, because of the more limited scale of an individual company's internal operations. All of this rests on the importance of an unquestioned reputation for reliability both in terms of quality of service and speed; often entailing last minute delivery, in response to last minute customer demands. The commercially ideal client for Delling is one which changes the content and sometimes the choice of media on a frequent basis leading to volume supply and demand.

This is a new approach that takes time to be adopted by companies, which need to be persuaded of the financial advantages and Delling's reliability. Its relationship with McDonald's in Norway, for example, has changed from ad-hoc supplier of multimedia goods and services, to one in which McDonald's Norway relies almost wholly on Delling for the supply and management of every physical item necessary to support the marketing of McDonald's and its products. Inside retail outlets and on the street. Any marketing aid that involves printing, analogue and digital technology or any other physical resource, is now advised upon by Delling, procured for appropriateness of purpose by Delling, negotiated at the best price by Delling from third party suppliers and often installed and maintained by Delling and its associates.

Central to Delling's marketing service offer and strategy, is its ability to supply and advise about an ever widening range of multi-media solutions to clients' demands. Its relationship with a client may begin with the supply of a specialist service (large sized photography and printing for example, in which Delling is the market leader both technologically and for cost) but end in a contract to provide and advise on everything - as shown by the recent example of the new contractual arrangements with McDonald's in Norway.

Keeping customers impressed and happy.

Delling's aim is to turn specialist supply contracts into management contracts in which Delling is given full management responsibility. It is a trend influenced by two important factors: first, Delling's known reputation for acting swiftly and meeting the tightest deadlines. For example, it was offered the last minute opportunity to supply and install everything for a Swedish exhibition by a Japanese company. It was able to complete everything within a week.

Second, by the emergence of outsourcing as a general means of allowing user companies to cut internal costs while allowing user companies to concentrate on core operating tasks.

Oslo and Stockholm

The existence of operating offices in both Stockholm and Oslo enables Delling to establish certain specialisations based on local resources, skills and market needs. It also allows the company to take fullest advantage of each national market's commercial opportunities. Oslo, for example, has made an investment in the technology which makes Delling Scandinavia's exclusive leader in the printing of the largest, high quality poster and display images on a range of materials. It is a service and product which, because of its scarcity value in Scandinavia, is not only profitable but which also may lead to the introduction of other business. Most of the other regular printing for clients is put out to tender by Delling on price and quality, as part of its service offer to customers. Oslo fulfills all of Delling's requirements for specialist large sized printing including those emanating from the Stockholm centre. Similarly, Stockholm specialises in photographic reproduction and the technology of the moving image for marketing.

This two-centre specialisation model is economically efficient in terms of the cost of capital investment, optimum use of capital equipment and human resources. Capital investment in large scale digital printing is about to be increased not only to meet growing demand but also to ensure sustained client satisfaction with order turn around and delivery times. Significantly and purposefully, both Stockholm and Oslo have new lower cost workshop/office centres which bring together for the first time all the activities and staff which have come through Delling's recent acquisitions. The new premises enhance internal communication and cooperation between growing specialisations. It also manifestly assists client presentations, relationships and new business. Following the latest acquisition, Stockholm will have approximately 42 employees and Oslo, 30 employees. The new premises in each case, has sufficient spare room to allow for a rising number of client servicing staff.

Delling's equity growth model.

Delling's growth is based on its ability to provide an ever widening range of specialist services to an increasing client and customer base. As stated, its ultimate objective in individual cases is, where possible, to achieve the position in which Delling has the contractual responsibility to supply and manage all of a company's marketing support needs

To drive this process, Delling plans to continue its programme of Scandinavian company acquisitions in accordance with firmly understood strategic criteria: buying companies with commercially valuable skills, services and products to extend Delling's range of services offered to customers; buying companies with client lists which extend Delling's existing customer base; third, generally paying no more than one to four times the acquired company's pre-tax profit, thus enhancing Dellings attributable shareholder earnings. Fourthly, buying only commercially successful companies.

From such acquisitions, Delling will not retain capacity that conflicts with its role as a procurement agency for clients of appropriate quality services, materials and products at the best price. For example, Delling may acquire a printing company for its customer list and specialist product offer but dispose of its in-house printing capacity, substituting competitive third party printing tenders for internal printing. In recent times, Delling has increasingly placed printing work on behalf of its customers in Poland where the work is done most cost effectively on the most up to date printing equipment - an arrangement that gives competitive cost advantage to Delling's clients and improves Delling's own margins.

Delling continues to take the view that there are plenty of companies for acquisition in Scandinavia which will continue to satisfy its aforementioned criteria. The current year is expected to demonstrate strong evidence of this assertion with several more company takeovers, following those of recent times.





Management


Aksel Bratvedt Executive Chairman.
Aksel Bradvedt has seven years experience of media production and management of digital assets. His career experience also includes six years in investment banking with Hambros Bank and Elcon Partners in Oslo. Previously, he was a specialist consultant in strategy, organisation and technology in Stockholm, working for Nordic Management, Siar-Bossard and Ericsson Radio System in relation to mobile telecommunications.

Geir Lolleng Chief Executive Officer. A lawyer by training and early profession, Geir Lolleng spent fifteen years as the managing partner of several Oslo based law firms. He oversaw the management and integration of the Depicta and Azzets companies, two important early acquisitions.

James Robinson Finance Director. James Robinson joined Delling Group in a full time executive capacity in June 2005, as the company's first full time director of finance. A Chartered Accountant with a masters degree in economics from Cambridge University, he previously worked for the CLB accountancy practice with specific responsibility for corporate finance.

Chistopher Stone - non executive director. Christopher Stone is Chief Executive of British software application company Northgate Information Systems which is listed on the London Stock Exchange and constituent of the FTSE 250 Index. When Stone arrived at Northgate it was on the verge of financial extinction. He has served as senior executive with EFS, the Digital Equipment Corporation and Accenture. Prior to that he was a business consultant with Bain & Co.

Robert Lowe - non executive director. Robert Lowe's business experience includes Superscape where he was deputy Chief Executive. At Intersolve he served as International Vice President and was divisional President with Micro Focus. He is Chairman of AIM listed company Corpora Software.

Mikael von Schedvin - non executive director. Mikael von Schedvin is a partner in the Swedish law firm MAQS and a director of a number of Swedish companies. He has experience of doing business throughout the Nordic area and Eastern Europe.

David Krucik - non-executive director David Krucik has served on the board from the beginning. He is head of a private equity practice in the international strategy consulting firm, OC&C in London.





Opportunities and threats

Scandinavia including the Baltic countries of Finland, Estonia, Latvia and Lithuania forms a well defined and well established region of economic activity, commercial enterprise and significantly high per capita GDP. It provides Delling with opportunities to which its strategic plan is tailor made.

First, it is home to a wide range of indigenous companies, some of which, like Electrolux, Saab, Akzo Noble, Carlsberg, Nokia, Astra Zeneca (Swedish/British), Maeresk, Ikea, Bang and Olufsen, Fred Olsen and SKF are well established international companies. Reflecting its economic importance, Scandinavia also plays host to a wide range of international companies with local operations with varying degrees of autonomy. Companies such as Hewlett Packard, MacDonalds, Nokia, Shell, Microsoft, Esso, Burger King and Pfizer are already customers of Delling despite the fact that as a company it did not exist in its current form until March 2004.

It is worth repeating that if Scandinavia were a single national economy, it would be ranked in the top half dozen economies in the world. Scandinavia has widely diversified industries including natural resources and energy, transport (aircraft, motor vehicles and shipping), engineering, industrial manufacture, pharmaceuticals, financial services, consumer goods and retailing. Scandinavia comprises an affluent economic zone which provides Delling with an enormous range of clients and market prosects.

Second, Scandinavia also provides the company with a steady flow of small incremental acquisition targets at prices which by current UK standards represent highly attractive, earnings enhancing low multiples of net profit. Delling expects to make several such acquisitions over the coming months. It has already grown its client base and revenues strongly on the back of such acquisitions and will continue to do so for the foreseeable future, including several over the next twelve months which are at an advanced stage of negotiation and due diligence. Recent targets have been purchased at prices which amount to no more than four times pre tax profits. They are generally small private companies of which there are many, with no exit other than that offered by a trade sale. With such takeovers, and the subsequent cross selling of a widening range of products and service to a growing client list, Delling is creating a growing commercial enterprise in which the equity of the whole, is of much greater value than the sum of its acquisitions.





Most recent results

Results for the year to 31 December 2005.

The company yesterday published its report and accounts for the year to 31 December 2005. Group turnover more than doubled (up precisely 145 % from 2.17 million pounds the year before to 5.31 million pounds). Gross profit increased 109 % from 1.38 million pounds to 2.88 million pounds. Gross profits as a margin of sales were 54 % in the year to December 2005 compared with 63.5% the previous year. Operating costs rose 28.3% to just under 5.8 million pounds meaning that there was an operating loss of 2.9 million pounds; up 9% on the previous year's cost base of just under 2.7 million pounds.

These results reflect a year of considerable change for Delling. There were the costs associated with three new acquisitions: Unikum Professional Imaging, Andre Worldwide Visual Communications and Bredde. Unkium and Andre Worldwide were incorporated into the Group in May and Bredde in June.

A tentative movement into entering the UK market was re-evaluated and shelved, confirming that Delling will focus its development on Scandinavia, the Baltic and, for resourcing purposes, Poland. Most of the costs relating to the termination of the embryonic involvement in the UK were small and fully accounted for in the 2005 accounts.

There were also costs relating to strategically important pilot product and service developments including screen development work which were not covered by commercial revenue in 2005. Finally, 2005 included the costs of relocating new and existing staff to the new operating sites in Oslo and Stockholm. In June 2005 Delling crucially increased its executive board management team from two to three with the appointment of its first executive Finance Director James Robinson, a UK Chartered Accountant who was added to the pay roll in June 2005.





Balance sheet and cash flow

The balance sheet as at 31 December 2005 showed little change in fixed assets compared with the position a year earlier - they stood at 3.67 million pounds. - but only 16.3% of that total was in the form of tangible assets. In current assets, cash rose 7% to 304,000 pounds whereas there was a dramatic rise in debtors or accounts due, from 698,000 pounds to 2,896,000 pounds. This more than fourfold increase reflects sharply rising sales revenue and the growth of the business. Similarly, short term creditors also rose strongly but less sharply, rising 72% to 6,086,000 pounds giving a negative working capital figure of 2.8 million pounds.

Total assets minus current liabilities were 864,000 pounds reflecting growth of the business which was also mirrored in a 77% increase long term creditors to 756,000 pounds. The rise in debt combined with last year's loss meant that funds attributable to shareholders on 31 December 2005 reduced to 108,000 pounds from 657,000 pounds a year earlier.

Group cash flow shows that operations were still cash absorbant with a net cash outflow from operations rising to 1,142,000 pounds; nearly double the cash outflow in 2004. There was no cash outflow as the result taxation. Indeed, there was a small credit of 33,000 pounds. (It should be noted that tax losses carried forward mean that there is unlikely to be any taxation of future Delling profits for some years to come). 350,000 pounds was spent on capital expenditure and investments. Although there was an increase of 1.1 million pounds in capital (well down on the 2.8 million pounds in 2004) long term loan facilities were used. Last year there were no such loans. This year they contributed 338,000 pounds. Financing contributed a 1.44 million pound contribution to cash inflow. There was a relatively small 123,000 pound net cash outflow.

The placing of 59.74 million shares at 8p with institutional clients of Seymour Pierce has transformed the balance sheet. Delling now has positive working capital and net cash which will allow it to accelerate its organic growth and to make further acquisitions.







Profits forecasts

Last year - historic background.

At the time of our first report on Delling (21 April 2005) it was a much smaller company. The report and accounts for 2004 were still awaited. We estimated annual revenue of 1.8 million pounds - up 231% on the previous year's 0.54 million pounds. In the event the actual turnover figure reported for 2004 was 2.17 million pounds; an increase of just over 300%. At that point there was no Finance Director although his appointment had been announced. James Robinson, a Chartered Accountant, took up his duties half way through 2005 in June. A year later in June 2006, we look at an enterprise which in 2005 more than doubled its revenue again to 5.3 million pounds and which has the benefit of twelve months of full time financial direction and control. The rapid growth in revenue, and introduction of specialist financial direction by Delling's founders Aksel Bratvedt (CEO) and Geir Lolleng (COO) does, we believe, make our current forecasts more reliable.

Current year to 31 December 2006.

In the current year to 31 December 2006, we should see continued strong growth in sales revenue. That will be driven by robust organic growth and acquisitions. We confidently expect sales to more than double again this year to 10.6 million pounds with the potential of reaching 13 million pounds, depending on the size and timing of new contract wins. At the operating level, the objective is to gradually improve operating margins. This will be accomplished by close management of Delling's cost base and the taking up of spare capacity built into Delling's operational capacity, as new contracts and revenue increase over the next year or so, in line with strategy. Consequently, at this stage, we are estimating sales of 11.5 million pounds for the current year (an annual rise of an estimated 116%). In our view a conservative figure which can be raised later in line with achieved progress. The operating loss of last year should be eliminated and we are forecasting an operating margin of 8%. On those assumptions we are estimating net profits of 1.05 million pounds and earnings per share, based on the enlarged share capital, of 1p. If sales reach the higher 13.5 million pound figure which was our previous forecast and which may still be achievable if acquisitions are made quickly, operational gearing will push earnings ahead sharply.

Next year to 31 December 2007.

For next year, to December 2007, we make the following assumptions. We expect further strong growth in revenue in line with strategy. We estimate a further doubling of turnover from an estimated 11.5 million pounds this year to 23 million pounds next year, partly in anticipation of a number of the screen pilot projects being converted into sizeable contracts and partly as a result of further acquisitions. We argue that economies and efficiencies arising from that kind of revenue growth will mean a further improvement in operating and net margins. Assuming an operating margin of 12% for 2007 as a whole, and a reduction in interest costs because of the additional funds raised, we estimate net profits of 2.5 million pounds for next year - or 1.9p per share.





Detailed Financials


It is to be noted that Delling Group was incorporated in March 2004 and listed on AIM in October 2004. The figures for the year to December 31 2003 are, as in our last review, the original Swedish Krona values for Depicta AB (the progenitor Swedish company) translated at the historic SEK/pound exchange rate of 13.415. Depicta between 2001 and 2003 was a privately owned Swedish company now incorporated into Delling Group.


Valuation and conclusion

On our profit estimates given below we are estimating earnings per share of 1p for the current year and 1.9 p for next year. At the current price of 9.5p, Delling's shares trade on a 9.5 times current year's estimated earnings falling to 5 times the 2005 forecast. The company is valued at around 1 times current year forecast sales.

It is difficult to find a company with which to compare Delling. It is clearly a media company but it is not an advertising agency. Moreover, its business activities are focused on Scandinavia which, as demonstrated in this note, provides the company with singular strategic advantages which would not be obviously available to the company in the UK and elsewhere. Despite three years of dramatic and spectacular growth in sales revenue it is still a relatively small company on the verge of profitability, as it begins to derive the business benefits and efficiencies from the strong rise in sales revenue. Bearing these differences in mind we contrast Delling's rating with that of Media Square (a much bigger and more diverse company) which is on an estimated reported earnings to price multiple of 22.6 times. WPP (an even bigger advertising company valued at 7.7 billion pounds) is estimated to show 12% earnings growth next year and is rated on that basis, on a forward multiple of around 15 times this year's estimated earnings per share and 14 times next year's estimated earnings per share.

Delling by contrast (at 9.5p) has a prospective forward rating of only 5 times our estimate of 2007 earnings which is only a fraction of the estimated 90% growth in earnings next year On the conventional price to earnings ratio the shares look outstandingly good value. Buy.

[silverfern] 20/6/2006 14:51

I just read that post from feroza - nothing contentious in it. Why are such posts removed if they are not adverts?

[Abuse team] 20/6/2006 13:35

Post removed by ADVFN

[yorgi] 20/6/2006 09:39

Not very impresive to say the least. Why the hell I bought more......

[the bull] 20/6/2006 09:06

Another city equities flop, i won't touch them with a bargepole anymore

[mo123] 20/6/2006 08:44

A lot of the money raised may be used to pay off their creditors. No sign of profits in the year ahead. Might buy at 5p.

[james t kirk] 20/6/2006 08:39

I've made enough bad decisons recently so at least selling this was a good one. I've sold HML too, don't like the vibes there at all.

[silverfern] 20/6/2006 08:24

Well done JT - good companies are struggling right now, you don't want to be in a poorly run one.

[james t kirk] 20/6/2006 08:20

Don't worry I also sold well before results, and agree that at this stage not worth holding.

[silverfern] 20/6/2006 07:56

I wouldn't touch this at all now. I was annoyed to sell at 16p at the last results but even the the worst anyone was saying then was not on a par with what they have now maqnaged to do. Good luck if you hang on but this is eating money and the results are not ok.

[james t kirk] 20/6/2006 07:26

Results ok, but not so happy about the massive share dilution, only 67m shares now and they're adding 47m or about 70% more at 8p. It's no wonder that some of the major holders are happy to buy at 8p.

[james t kirk] 06/6/2006 13:25

Someone's paid 1p over the offer for 70k. Currently limits are crazy buy 2.5k at full offer, why are they restricting it so much?

[james t kirk] 05/6/2006 16:49

Hi yorgi, you can sell at 11.5p which is mid price and a very good sign. There's been a constant drip of buys recently and there's plenty of stock held by major share holders so it doesn't take much to move it.

I'm not sure what the results will bring, but this year certainly is looking better and the newsflow at the moment is very encouraging.