Australia | Mar 16 2007
By Chris Shaw
Online Media is a growing sector for advertising in particular and Hostworks (HWG) has been a significant player in the market. Thus far, however, the company has struggled to turn this strong market position into earnings growth as costs have tended to grow faster than revenues.
Micro cap specialist Microequities suggests the company has now addressed this problem and has upgraded its rating to Buy from Hold, citing its latest profit result as evidence operations are turning around.
For the half year the company lifted revenue 15% to $10.67m, generating EBIT (earnings before interest and tax) of $0.76m, up 497%, and net profit of $0.65m, up 356% from the previous corresponding period.
The result reflected an improvement in EBIT margins, which increased to 8.65% from 6.86%, and has led Microequities to forecast full year EBIT of $1.93m and a full year profit of $1.72m.
There is a chance the group’s profit forecast will be beaten as the company has begun to generate higher revenues from its clients, with average monthly revenue from customers now at $31,000 compared to $24,000 two years ago. The company has also won some new clients, including Ten Network (TEN) and SBS Broadcasting, while generating additional work from its existing customer base.
As a result, Microequities suggests earnings risk remains to the upside, supporting its rating and revised price target of $0.265, up from $0.20. This compares to a trading range for the stock over the past 12 months of 15c to 25.5c. At the stock’s last closing price of 20c the company is capitalised at around $33.6m, so it receives little coverage in the market.