31-10-2004 - Printing.com - When Printing.com took centre stage at OFEX - The Sunday Star
It was as far back as September 2000 when Printing.com (PDC) took centre stage at OFEX, raising 2 million pounds at 22p. What it was doing then was pretty boldly to utilise the power and flexibility of the internet to challenge the local print operations which are such a feature of the urban landscape - these brands are often franchised - and to do so on their own ground. The moving spirit in the transformation of the business model which this represented was one Tony Rafferty, then as now the company's Chief Executive.Printing.com has a powerful four-colour plant in Manchester, through which it aims to ensure that it can give a better product, and do so more cheaply. The outlets which served the core unit, often deliberately, were located cheek-by-jowl by these on-demand printers. Printing.com mounts its service online; the key being its proprietary software. So, clicks and mortar were the name of the game as the company went hell-bent in planning to extend its number of outlets from five to forty-five, and to increase throughput per unit. Each one of these needed about 50,000 pounds in setting-up costs. The company had hoped to clock up sales of 4.4 million pounds by March 2001, and 9.4 million pounds by March 2002. It expected then to lose 600,000 pounds on the former total, and make 600,000 pounds on the latter.
"I still cannot thank you enough for getting us out of Caplay right at the top - the huge profits on this will pay my subscription thirty times over" PG, London
It had to be recognised that it was this new idea and the successful fund raising gave the company a new lease of life. The previous figures had clearly indicated that the horrible conditions in the printing industry were having their effect on Printing.com as on many other small enterprises in the same line. Frankly, even if there had been no great idea, an injection of risk capital had been clearly necessary for survival, as the rising tide of borrowing costs began to overwhelm the increasingly fragile defences which were the operating profits. Full marks then for the acuity which allowed the sales-cum-software planning for the economic loading of the central production unit to proceed, and one hoped that the rewards which could accrue to the shareholders, could be delivered with the same dexterity as was shown in their seduction.
The shortfall in turnover to March 2001 was not disastrous - 3.9 million pounds was achieved - but instead of the 600,000 pounds indicated the loss figure hit 1.2 million pounds - a major setback. It was a comfort that the failure of sales to meet target was said to be due to the weakness of the traditional business not the new. The proudly restored liquid position had been seriously eroded afresh of course, and post the year-end the company had needed a 300,000 pounds, 18p injection. But Printing.com reckoned that if it marked time on the opening programme, the new money would carry it through to cash break-even. But it is said that no battle plan ever survives its first contact with the enemy and in April 2002 the barrage of news having ceased, the directors went over the top. The objective was another 750,000 pounds to be subscribed at 20p, the lists allowing another 500,000 pounds to be garnered at the same price if demand existed. The eventual news from the front was that 1.1 million pounds had been raised.
"You tipped Coutts at 105p on August 25th - 3 weeks later a cash bid at 150p - that's high quality analysis. More please!" LH, Wrexham.
A decisive and beneficial change had taken place in the shape of creation of outlets - that of franchising. There followed the March 2002 figures, which clocked up a near 800,000 pounds loss, but by the time that the accounts were tabled there were indications too that the expanding company was now trading profitably. And, making as it did a 500,000 pounds pre-tax profit to March 2003, and then just under 1 million pounds to March 2004, Printing.com eventually did close that chapter.
The company quit OFEX to alight on AIM raising less than 1 million pounds - for less than 10% of the equity - at 30p. By now the number of franchised stores, 14, exceeded the owned outlets; moreover there were 57 of what the company calls "bolt-on" franchises, where established businesses with broader trading profiles are yet licensed to utilise the system and the brand. Burgeoning sales at higher margins are the reward for a trading profile which both eases pressure on capital needs and insulates the core from underperforming units. Since the move, after an initial premium, the shares have drifted a bit and are now 28p. The company's brokers think that the earnings for the year to March 2005 will be circa 2.5p, which means a prospective price earnings ratio of 11; and come March 2006, 4.4p of earnings with a consequent earnings figure of just 6. With a dividend promised too, any future news flow which gives evidence of supporting such figures would surely create conditions for the recovery of lost ground in terms of share price - and a good bit more besides I would think.
There was an ill-timed lull in the franchise programme during the summer, but the latest news is of the pipeline filling up again. I think that lumpiness is probably inevitable, and would, too, put extrapolations about the number of potential outlets on the back burner for now. The real question is this - are the franchisees happy? Because if they can make a good living, a business model exerting ever more beneficial pressure on the centre, is capable of allowing the core company consistently to exceed expectations. With at least the possibility that Printing.com could kindle, especially in the light of the recent achievements I believe that the upside potential is greater than that of the downside - and that the shares are a buy.