Investor's Champion Blog
Provides refreshingly forthright, independent comment on predominantly small cap companies and specialist investment funds. Informed opinion, based on first-hand research, but pulls no punches in exposing management weaknesses.

Western & Oriental-it all appears to be proceeding as planned so why no interest in the shares

Western & Oriental (‘W&O’), the luxury travel group and an IPO in which we participated in March announced its maiden results today for the 12 months to 30th September.

Sales increased by 76% to £14.4m broken down into continuing sales of £8.2m and sales from acquisitions made during the period of £6.3m. Whilst continuing sales compared to the same period last year were flat at £8.2m, apparently there was a strong second half turnaround with sales up 8% over the same period last year. A loss was anticipated at this stage and in line with expectations so there is nothing to read into this. A good reflection of the turnaround can be seen from the forward orders with the continuing business at the end of September up 56% to £2.0m.

The strategy appears to be proceeding nicely

W&O only came to the market in March so it is somewhat premature to cast judgement as to whether the strategy is a success or not.

It appears to me that the stated strategy of rolling up luxury travel assets is going along very nicely. For a small company of W&O’s size to have already made six acquisitions since March, all of which have strengthened its geographic and product offering, is terrific.

Today’s announcement also confirmed that there is a healthy pipeline of potential acquisitions which should continue to bring synergies both through back-office integration as well cross-marketing opportunities.

They also have just under £5m of cash on the balance sheet as a result of all those holiday makers having to pay in advance.

'Unusually', I support the house broker’s view and am encouraged by the rate and quality of companies acquired since float.

The business model appears to be great with lots of cash being received up front from wealthy people booking expensive holidays. On the other side the group doesn’t have to actually commit in advance to flight and hotel inventory.

Cost savings are already starting to come through and the forward order book looks good. Assuming they keep on top of things operationally margins should also increase as it benefits from scale and better purchasing power.

They can look forward to IFRS accounting for the year ended September 2008 which remains some way off.

I like the following from the Chairman’s statement:

‘The Board expects that the acquisitions made to date should now generate sufficient cash profits to support the group's revised cost base on an annualised basis. We also view the future with optimism and remain confident that we can create a substantial group and deliver significant shareholder value in the medium to longer term.’

Very positive stuff!

The shares dramatically fell to as low as c10.5p post float and have now climbed back to c16p. They shouldn’t have been punished this much.

Today’s statement is full of lots of information on progress to date and worth reading. The trade in 8,900 shares appears an odd response!


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