Quarto Group LON:QRT is an interesting London-listed publishing company that is actually situated in the US. It is very much a micro-cap play. It is currently valued at around the £40m mark with a total enterprise value of £56m. Revenues are just under £100m.
Shares in Quarto Group jumped from 74p to hit 105 p over the summer, although it has since dropped to a range in the 95-100 space. There seems to be less activity in the stock than we saw over the summer, but investor sentiment around it still looks positive.
The share price was partly driven by the acquisition of 10,000 shares by 1010 Printing in Hong Kong, which is a company closely associated with Quarto Group CEO Chuk Kin Lau. This brings 1010 Printing’s stake up to 37.12% of issued share capital. Lau personally holds 4.11% of the share capital.
Does the market for illustrated books still have legs?
The company is in the business of illustrated books. It creates and publishes a diverse portfolio of imprints. It is not solely focused on the North American market, however, and also has international imprints and distribution relationships. Quarto sells and distributes its products globally in over 50 countries and 4o languages, through a variety of sales channels, partnerships and routes to market.It currently employs around 300 people in the UK and US. It was founded in 1976.
The group announced half year results in June, with $56m in revenue and a profit of $4m. This can be measured against a loss of $2.5m for 1H 2020 (the previous period under review). That’s quite a substantial turnaround, and seems also to have pleased the investor community. Revenue was reported up 21% while net debt was reduced in the 12 months to end of June by $21m to $16.4m, driven by a cost reduction program.
“We are now focused on the critical second half as we expect the trading environment to be particularly challenging, especially with the volatility in freight, regarding capacity issues and freight costs,” Lau told investors in June. “That said, we have the right plans in place to capture all possible opportunities and ensure a satisfactory year-end.”
As we have said, there is not a lot of activity in the stock, so it may be hard to move bigger sums in and out. It still looks cheap though – its PE is down at 5.2 and it has a price to book ratio of 1.21.
General decline in revenue – one to watch
Things not to like with Quarto Group include the slide in the revenues, which were up at around £182m in 2015. It reported 2020 revenues of £127m and on a TTM basis they are at around £137m. But the CAGR rate of both revenues and profits is in the red at -6.98% and -9.52% respectively.
Net debt for Quarto Group stands at £22m versus around £19m in cash on the balance sheet, and just under £10m in fixed assets.
Publishing books is a tough business at the best of times – I’ve had some experience of the industry and it was operating on tight margins in the 1990s. It is even worse now with the likes of Amazon added to the mix. That said, Quarto Group seems to be quickly returning to form and investors seem to be getting behind Lau.
