Cupid brings to mind a Rubenesque cherub with wings defying the laws of physics to keep it aloft in order to aim an arrow at a hapless couple. But times have moved on. In today's world everything has a price - even love. Cupid is now a fast-growing internet dating agency, with net cash on its balance sheet, ambitious expansion plans and a fast-growing dividend.
- Expansion of online dating agencies
- Rapid overseas growth
- Subscription-only model
- Share buy back programme
- Internet business is fiercely competitive
- Sliding profit margins
Internet dating is high-growth stuff. Figures from YouGov estimate that one in five relationships in the UK now start online and that singles contribute almost £3.4bn a year to the UK's economy in search of a partner. January is the busiest month as traffic surges with New Year's resolutions to find love. Dating websites such as Match, eHarmony and Lovestruck have all reported large increases in post-Christmas traffic.
Cupid is the only quoted online dating company, while a solid balance sheet backed by a share buy- back programme are further encouraging signs. The company said in November it expects to finish the year with net cash of £11m; this is after completing two significant acquisitions - Uniform Dating in the UK and expanding overseas with AGL in France. Chief executive Bill Dobbie says he expected profits "substantially" ahead of last year, with strong cash flow. One reason for Mr Dobbie's confidence is the subscription model of Cupid's websites. Revenue is not dependent on fickle advertising, people subscribe to find love and growing numbers replace those that do.
Mr Dobbie has also decided to return cash to shareholders, a clear sign that management feels the shares are undervalued. In December, shareholders authorised that up to 10 per cent of the issued share capital could be bought back. The programme started in earnest in January but the share price has yet to react.
CUPID (CUP) | ||||
|---|---|---|---|---|
| ORD PRICE: | 195p | MARKET VALUE: | £165m | |
| TOUCH: | 194-195p | 12-MONTH HIGH: | 226p | LOW: 165p |
| DIVIDEND YIELD: | 1.8% | PE RATIO: | 10 | |
| NET ASSET VALUE: | 31p | NET CASH: | £7.7m | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | 8.5 | 1.0 | - | nil |
| 2010 | 25.7 | 4.2 | 4.7 | 1.32 |
| 2011 | 55.6 | 7.0 | 7.1 | 2.25 |
| 2012* | 79.0 | 15.7 | 14.1 | 3.00 |
| 2013* | 100.4 | 22.4 | 19.5 | 3.60 |
| % change | +27 | +43 | +38 | +20 |
Normal market size: 1,250 Matched bargain trading Beta: 0.9 *Peel Hunt estimates (profits and earnings are not comparable with historic figures) | ||||
Perhaps that's because Cupid is in an intensely competitive segment where barriers to entry are low. For example, Facebook has just launched a new 'Graph search' tool and it is feared this could disrupt the online dating world. Cupid's outside investors may also fret that they are in the minority with a free float of just 22 per cent of the shares. Of the major shareholders, Mr Dobbie holds around 24 per cent and Ukranian politician Maxym Polyakov has around 22 per cent.
Yet Cupid, as the table shows, is growing fast. In the first half of 2012 revenues from new overseas markets raced ahead 122 per cent and contributed over half of the total of £38.6m. But heavy marketing spend in an increasingly competitive market resulted in gross profit margin slipping 8 percentage points from 30 to 22 per cent; pre-tax profits slipped from £3.9m to £3.6m.
