CML Group Limited - CGR
GICS Sub-Industry - Commercial and Professional Services
Current Price - $0.34
Market Capitalisation ($M) - 45.9
As of 06/09/2017 16:00 AEST
What Do They Do?
CML Group (ASX:CGR) is a provider of factoring/receivables finance. Factoring is a financing method in which a business sells its accounts receivables/ invoices at a discount to a third-party funding source to raise capital. CML has a tightly focused credit approval process, which enables it to assess and approve new facility applications within 24 hours of receiving the relevant information. It is then possible to settle a new account within five working days.
CML provides a payment of typically up to 80% of a client’s invoice in advance of payment from their customer (often 30 to 60 days). Invoices funded are also covered by insurance. The current policies are from QBE and a subsidiary of Allianz, both of which cover all losses greater than $5,000 to a maximum of 90%. CML therefore has recourse to the end debtor, the financing client and ultimately the insurance policy making it insulated against default risks.
With an excess of $500m of invoices purchased in 1H17, CML is the second largest non-bank invoice finance provider in Australia, behind Scottish Pacific. CML has a circa 22% share of the Australian factoring market and is poised to benefit from a highly underpenetrated market (only 3.9% vs 15.5% in the UK) which is growing at mid-to-high single digits year-on-year.
What Do We Like?
We recently caught up with CML Group’s CEO Daniel Riley following the FY17 result, and noted a number of positive indicators for the company.
1. FY17 Result
The company saw a 40% increase in EPS, acquisitions consolidated under one brand name (Cashflow Finance) and margin expansion as a result of a better client base.
Despite similar volumes between 1H17 and 2H17, profits in 2H17 almost doubled from 1.4 million to 2.4 million as a result of improving the client base with more high-margin clients. Going forward, the CEO has stated that margins are expected to remain at 2.8%.
2. Secured Funding
More notably, the business has secured funding from ANZ in March 2017 in via a $40 million drawdown facility. The CEO expects to transition into being funded by ANZ on a larger scale in 12-24 months’ time as its existing credit arrangements expire. We are attracted to this notion as the funding arrangement will lower CML’s capital risks and lower interest costs. We also like that the company is relatively immune to different economic conditions, as low economic conditions will result in more receivables being sold (factored) and better economic conditions will lead to higher credit collection quality and lower underwriting risks.
3. Good Management Team
CML has a highly experienced risk underwriting management team: Peter Toohey is Executive General Manager and has over 40 years of experience in banking and finance, with a specialisation in invoice financing for the last two decades; and Shannon Stelfox the National Operations Manager who has 23 years of invoice finance at Scottish Pacific.
Glennon Capital does own CML Group in the portfolio.
As of the 6th September 2017 this information is accurate. Glennon Capital holds shares in CML Group for client portfolios. The information contained in this article or video is general in nature and does not consider your personal financial situation. The information is not a recommendation or offer to buy securities. You are advised to seek professional financial advice prior to making any investment decisions. The views expressed in this article may change at any time, such is the nature of the investment markets.