Hitting a Purple patch
It will be fascinating to see how the market reacts to Purple Group’s interim results over the next few weeks. Purple is an intriguing small-cap story, starting way back in the late 1980s as Dectronic, which set a noble goal to invest and add value in small to medium enterprises. A few years later it reinvented itself as Avasa, with private equity personalities Julian Treger and Brian Myerson as prime movers.
Purple took in microfinance, sports betting and asset management along the way before it really made its mark with EasyEquities — the online share trading platform designed with retail investors in mind.
I have used EasyEquities for years, finding the platform user-friendly, cost effective and, of late, highly innovative. I particularly enjoy the access to a multitude of US equities and exchange traded funds, which allows me to make disciplined deposits for the offspring’s financial security. The incredible growth in EasyEquity’s client numbers does not surprise me … the brand has become almost a default for a new generation of investors.
Am I a Purple shareholder? Not at the moment. In truth I don’t hold any shares in the broader financial services, brokerage and wealth management sphere, and if I did I’d probably delve into the dependable dividend plays like Ninety One and Coronation. That said, I would certainly buy Purple — at the right price. At this juncture Purple sits on a trailing p:e of over 50 times. That’s the kind of rating the market slapped on private education business Curro some years back.
Curro now trades at a more “pedestrian” 26 p:e. If we pencil in Purple’s full year to end-August earnings at 6c a share then the p:e still sits at around a demanding 50 — which means Purple will need to keep growing EasyEquities at a brisk pace.
There is probably still a huge reservoir of “uninvested” people in SA, and if EasyEquities is the default option for newbies then vigorous growth seems certain. But how do we rate Purple’s prospects? There is no real point of comparison — but it’s worth noting that PSG Konsult (which did pretty well in the year to end-February) trades on a p:e of 23, Coronation on 9.25 and Ninety One on 12.55.
Some might argue Purple should be viewed as a fintech business. Then it’s worth noting that the perennially profitable Capital Appreciation trades on a 14 p:e, and the highly inventive Transaction Capital at 33. I suppose what worries me is that retail investors can be fickle, and that many EasyEquities clients may not have experienced a genuine investment cycle — which, as experienced market-watchers know, will include some stomach-churning dips that spook even hardy investors.
After the late-1990s tech and financial services blowout, many retail investors scurried off and only returned a few years later when sentiment had settled again. I certainly don’t wish this on Purple. EasyEquities has done sterling work in generating interest in small caps, which makes sure I have an audience for my musings on what are sometimes obscure shares. As regards the Purple share price, I’ll watch and wait for now.
A pretty package
Speaking of hesitancy, I was heartened to see that Grand Parade Investments (GPI) wasted little time in grasping a particularly nasty nettle in the form of loss-making catering supplies company Mac Brothers. In GPI’s last set of results I was mildly shocked to see the quantum of losses at Mac Brothers, which could easily have gnawed away at any future distributions.
Voluntary liquidation is never pretty, but GPI probably learnt from a similar exercise with the Dunkin’ franchise that letting things linger in hope is not at all prudent.
I also had a little chuckle at Caxton & CTP’s latest Sens announcement — which detailed the acquisition of Amcor’s bag-in-box and pouching division in Cape Town and its flexibles operation in Gqeberha for R90m. Caxton (in which I hold a few shares) has made many small packaging acquisitions over the years, and seemingly beds these operations down very successfully.
What tickled me was that at the tail end of the announcement, Caxton casually dropped in the disclosure that it had increased its shareholding in R5bn packaging giant Mpact to 34% “as a prelude to an intended merger transaction, for which Caxton is seeking competition approval”. Let’s hope this did not come as a shock to Mpact executives.