SPAR Group (SGRP), Small Cap stock, Full DD

by Egorbl4

Hello guys, i am searching for undervalued small cap stocks to invest in for myself and think that can share this researches with you. Maybe someone will find it usefull and i will find some new information here. Also English its not my native language, sorry in advance for some mistakes.

SPAR Group is a leading global merchandising and marketing services company, providing a broad range of services to retailers, manufacturers and distributors around the world. Our specialists are in stores restocking shelves, auditing inventory, performing competitive price shopping, setting up exciting promotions, assembling fixtures and furniture, preparing new locations for grand openings, assisting with sales and more. Its from their 10K.

I screen stocks for their fundamentals and then, if i see something interesting there, iam going deeper.

Lets see their multiples first:

– P/E 10,4x

– P/B 1,1x

– ROIC 26%

– Net debt (- 2,7 mln $) ( they have more cash in their balance than debt).

– Total debt/ CFO( cash flow from operations) = 1,5x.

They have really good fundamentals and strong balance sheet. Also positive FCFF ( free cash flow to the firm).

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Their revenue for 2020 was 230,5 mln $( 252,8 mln $ in 2019, – 9% YOY Growth). It consist of two majore sources. Revenue in United states was 92,1 mln $, International revenue 138,4 mln $.

Net international revenue: 2020 YOY Growth 2019
Brazil 49,940 -24% 65,942
South Africa 28,235 4% 27,201
Mexico 22,679 -3% 23,324
China 12,401 -5% 12,993
Japan 9,273 -19% 11,469
India 8,589 -3% 8,813
Canada 6,294 -31% 9,059
Australia 988 -68% 3,087
Turkey -100% 268
Total international revenue 138,399 (59,9% of revenue) -15% 162,156 (64,1% of revenue)

As you can see, Covid has a big negative impact on their International business.

After watching their fundamentals and revenue, i though, that maybe this is a value play, because their revenue deterioration may associated with COVID only.

I created DCF model to be sure. Even in a bad scenario with CAGR(Compound Annual Growth Rate) for their FCFF (-3,85%) for the upcoming 5 years and WACC 9% ) their intrinsic value is about 3 $ per share, with current price 1,66 $ per share.

Seems like no brainer, but i think that this is a value trap right here and i will try to explain my thoughts. Always ask yourself Why is this stock being sold at this price?

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I didnt see any drivers for this stock and why their price should goes up. Their main business heavily depends on international retailers, E-commerce share of a retail market will only grow( especially in Brazil and China, that have 35% and 8,9% of their international revenue accordingly), and revenue of SPAR Group will only shrink over time because of that, slowly but surely. I don’t think that a lot of people will find desire to buy this stock.

Yes, its a good company with really strong fundamentals right now and with intrinsic value about 3$ per share, but i will not buy it. Maybe i missing something, will be grateful if you show me what.

 

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.

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