It's been tough going for investors in car retailer Motorpoint(LSE:MOTR) and identity data intelligence specialist GB Group(LSE: GBG). The former's share price has declined by 38% since it entered the market back in mid-May. Shares in the latter are down by a third in just two months. With both companies releasing interim results this morning, will today mark the start of a turnaround or does more pain lie ahead?
Losing its identity?
Before September, shares in GB Group were on an almost relentless rise upwards. However, this climb came to an abrupt halt when the company warned that the roll-out of the GOV.UK Verify project across central Government departments was proceeding slower than intended. Factor in the impending departure of its long-standing CEO and many investors headed for the exits.
Today's interim results from the £311m cap were encouraging, however. Revenue rose 16% to £37.5 million and adjusted operating profits increased by 15% to £5.2 million. Positively, the latter figure was slightly ahead of the £5.0 million estimate set in the company's last trading update in October. Thanks to its acquisition-focused strategy, GB Group also expects to see increased growth in the second half of the year.
Any negatives? Profit after tax came in at £1.2 million compared to £2.3m over the same period in 2015. Furthermore, net debt now stands at £4m compared to the company's net cash position of £1.2m in the previous year due to the need to finance recent acquisitions and pay dividends. Nevertheless, the business expects cash balances will "return to surplus at year end".
On a forecast price-to-earnings (P/E) ratio of 24, shares in GB Group are still undeniably expensive, even after the fall since September. However, there's a lot to like about this company. Its best-in-class products and growing revenues combined with the increased need for identity fraud protection should see its share price recover significantly over the medium term, in my opinion.
Results from Motorpoint couldn't be more different. Although revenue increased by 11.5% to £408.9m, operating profits before exceptional items (such as costs relating to the company's recent IPO) were down a disconcerting 32% to £7m compared to results in first half of the year. Once these costs are factored in, Motorpoint's profits before tax slumped to £2.4m, down from £10.2m in the first half of the year. Although the company did announce a "significant increase" in repeat customers and a maiden interim dividend, I'm not sure this will be enough to cushion the blow for some investors.
That said, on a forward price-to-earnings ratio of 11 for 2017, shares in the Derby-based business are now looking fairly cheap. Dividends also look likely to rise quickly, with a jump of 77% to 5.5p per share predicted for 2018. The company's £39m net debt isn't great but Motorpoint does have almost £12 cash on its books.
So, is Motorpoint a decent contrarian bet? Not for me. Despite the positives mentioned above, there can be no denying that the company operates in a highly competitive industry that is also highly susceptible to any Brexit-related anxiety. In contrast, international revenues now represent 31% of GB Group's turnover following a number of global deals. With the company's products and services now installed in 70 countries around the world, it's this level of geographical diversification that makes GB Group a far safer choice.
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Paul Summers has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.