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  • Mark Watson-Mitchell

A tale of two Made’s, with one good and one still bad

Do not get confused with this one.


Last year two Made companies came to the market.


The first, in June, was the Made.com Group (LON:MADE), the furniture retailer, floated on a £775m valuation, with its shares at 200p, sponsored by JP Morgan Cazenove and Morgan Stanley.


The second, in September, was the Made Tech Group (LON:MTEC), in digital data services, floated on a £180m valuation, with its shares at 122p, sponsored by Singer Capital Markets and Berenberg.


Both companies have shown themselves to have been pathetic performers subsequent to their floats, one actually being disastrous.


Made.com rose to 208p before collapsing to 7.75p at their worst, but are now just 8.12p, with the current capitalisation of £32m.


Made Tech touched 150p before dropping to 22p at its lowest, but are now 34p, with a value of £50m.


Made.com is expected to almost quadruple its losses to £79.6m (£22.6m) in the year to end December. Its customers are higher-spend consumers.


Made Tech, which turned around from a loss of £0.4m in the year to end May 2021 to make a £2.2m profit this year. It is now expected to see a strong 64% advance to £3.6m pre-tax profits to end May 2023. Its customers are in the Government sector.


So why am I relating this to you?


Both stocks have the potential to bounce in price recovery, both companies are now well within my ‘Small-Cap’ market capitalisation criteria, both companies are due to report in September, and both will gain press mentions after their results.


But Made.com will grab the headlines, while Made Tech would be lucky to get mere centimetres of coverage in comparison.


My preference on an investment basis is far and away for Made Tech Group, even though its shares might be trading on price-to-earnings ratios far higher than my normal criteria.


The Business


Founded in 2008, Made Tech is a provider of digital, data and technology services to the UK public sector.


It now has a headcount of over 478 across its four UK locations, in London, Manchester, Bristol and Swansea.


It provides services that enable central government, healthcare and local government organisations to digitally transform, allowing them to modernise their legacy technology,

to accelerate their digital service delivery and to drive better decisions by using data.


Over the years it has consistently delivered high-profile and complex projects at such speed that it now enjoys a strong reputation within the market and has developed long-term, ‘sticky customer’ relationships.


The company offers digital delivery, data infrastructure and insights, embedded capabilities, and legacy application transformation services.


It serves central and local government, the housing, healthcare, transport, education, police, justice, emergency, the space, defence, and security sectors.


Its Customer’s


In the financial year ended March 2021, spending by Central Government on digital transformation totalled £3.15bn and forecasts predict that the UK ‘GovTech’ market will reach £20bn by 2025 and some £290bn globally.


The primary clients of the group are the departments, agencies and arm’s length bodies of UK Government.


The change in market dynamics occurring within central government is also appearing in other areas of public services, creating market opportunities in: Health – Supporting the central healthcare bodies; Local government – Supporting some 343 local authorities; Police – Supporting the central police bodies and 43 police forces; Defence – Supporting the central defence organisations; and Devolved administrations – Supporting the devolved Scottish governments.


The group has a focussed mission to digitise Public Services, differentiated by pure Public Sector focus and strong relationships.


It has a fast-expanding client base, including the Home Office, DVLA, HMRC, the Ministry of Justice and the Departments of Education and of International Trade.


The group claims that half the six highest spending government organisations are its clients.


Recent Wins and Current Projects


Last October the group was awarded its largest contract – worth £7m over two years, with the DVLA.


In February it announced that it was participating in a consortium that had won a £37.5m contract over two years, with the NHS Digital service. This could be worth £19m to the company.


At the beginning of July it was appointed as its Digital Services Partner to the Met Office, in a £7m contract over two years.


Some of the group’s current projects include delivering and operating the Multichannel Digital Tax Platform, which runs HMRC's Making Tax Digital services; supporting the Ministry of Justice to modernise the technology within the prison estate; and working with the DVLA to digitally transform key services such as the UK provisional driving licence system.


Its Shareholders


There are some 148m shares in issue.


Directors and Management hold good positions in the equity – Rory MacDonald (CEO) (28.16%), Chris Blackburn (COO) (14.41%), Luke Morton (CTO) (4.06%). Tom Taylor (Head of Client Success) (2.78%) and Ian Southward (CCO) (2.03%), together totalling over 51.44% of the company’s shares.


Professional investors include Premier Miton Group (7.02%), Berenberg Asset Management (5.74%), Canaccord Genuity Wealth (3.24%), Chelverton Asset Management (3.11%) and M&G Investment Management (2.79%).


Recent Trading Update


Last Friday (19 August) the group stated that it had seen strong accelerating growth in the year to end May 2022.


Revenues were up 120% at £29.3m (£13.3m), its adjusted EBITDA was up 618% from a loss of £0.5m to a positive £2.6m.


Cash balances were up to £12.3m (£0.9m).


Encouragingly sales bookings were some 115% during the year, at £51.1m £23.8m).


Made Tech's strategy is now to broaden its capability and geographic coverage as it seeks to diversify revenue and deliver further organic growth.


To support its growth, the group has expanded its service offering to include new capabilities in Data and Cyber and continued to increase its headcount in User Centred Design.


The geographic coverage of the business was also extended during the year with the first Made Tech employees being hired in Scotland, Newcastle and the Midlands.


Rory MacDonald, CEO, stated that:


"FY22 was a very significant year for Made Tech, one in which we delivered exceptionally high levels of organic growth. We navigated the well-documented macro recruitment challenges to double our headcount year on year and maintain our gross margin.


We have made a strong start to FY23 and look forward to updating our stakeholders on the group's progress, when we announce the FY22 results in September."


Broker’s View – a ‘deep value growth stock’


The trio of analysts at the group’s NOMAD and broker Singer Capital Markets rate the shares as a Buy.


Harold Evans, Kevin Ashton and Tom Like combine to fix a Price Objective of 118p a share.


Their estimates are for the year to end May 2022 to report revenues of £29.3m, adjusted pre-tax profits of £2.2m (£0.4m loss) and earnings of 1.5p per share.


For the current year they see £43.0m revenues, £3.6m profits and 2.0p of earnings.


My View – setting a 45p Target Price


Come 15 September when the company announces its 2022 final results, I believe that we will get a very positive Outlook Statement.


The shares have fallen so significantly from its September 2021 launch price of 122p, they are now at just 34p.


At that level I consider that there is some very strong share price recovery potential and I now set a conservative Target Price of 45p.


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