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Stocks and shares - your weekly tips

Monday 18 February 2013 5:00

With John Dance, chief investment officer and CEO of Vertem Asset Management.

After a week that romantic souls celebrated St Valentine’s Day it seems almost perfect that this week’s share view is on a company named Cupid. Social and lifestyle changes are leading more people across the globe to online dating sites to find a love match of one kind or another and in Europe and the US alone it is a £2bn industry and growing rapidly, in the UK it is estimated that one in five relationships forms online.

Cupid operates in the region of 30 different dating site brands across Europe, North America, Australasia and emerging markets such as Latin America. To cater for a variety of differing tastes, the offering is split in to three sectors, traditional dating, casual dating and niche dating with all the various sites operating on Cupid’s standardised ‘Flex’ platform.

In addition Cupid has taken advantage of the growth of social networking (Facebook, Twitter etc) to develop its own social media platform for mobiles and one which can also be operated as an ‘app’ on the likes of Facebook and other social media sites as they emerge. This seems particularly relevant as social media can be very much a fashion, for example does anybody still use MySpace or Bebo these days?

Cupid grew revenues and profit by double in 2011 and its 2012 half year report last autumn indicated a continuation of this exceptional growth rate. It has made a number of smaller site and brand acquisitions in the last two years which have buoyed its headline performance, but organic user growth is similarly impressive.

The company spends a lot on intellectual property development meaning much that to date a low portion of its profits have been converted to cash and its aforementioned acquisition strategy further muddies operational cash performance.

At 130p the shares trade at just under 10 times 2012 forecast earnings of 14.1p, which could be considered cheap when consensus forecasts for 2013 are for earnings of nearly 20p. Having spent much of the last 18 months at or around the 200p mark the shares were subject to a large decline recently, seemingly on the back of a harsh online blog view of the company’s business model.

The company has actively engaged in a share buyback program and at these suppressed share price levels the company is able to enhance remaining shareholder participation for relatively low outlays.

Vertem View: The shares are perhaps not for the faint hearted, however they do represent great value and are a BUY for the more adventurous, but don’t be too greedy, any gains over 50% in the next twelve months should probably be banked. The company reports its full year 2012 figures on March 8th and this could be the catalyst for a rerating.

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