Auction Technology Group swings to profit

Auction Technology Group (ATG) runs seven online platforms, which connect 2,300 auction houses with potential bidders. The websites deal in everything from tractors and dining tables to oil paintings and Rolex watches, and all products are vetted before sale. 

ATG’s full-year figures are flattered by the acquisition of LiveAuctioneers – an arts & antiques marketplace – last October. However, to aid comparisons, the group also includes results as if the acquisition had occurred a year earlier. On this pro-forma basis, revenue still grew by 11 per cent, pushing the group into profitability. 

A discrepancy is beginning to emerge between ATG’s two divisions, however: industrial & commercial and arts & antiques. The former is thought to be counter cyclical, given that second-hand products are cheaper than new ones, and bidders will be looking for a bargain. This is holding true. Management reported growth in the value and volume of secondary assets listed on its sites, and pro-forma revenue grew by 13 per cent.

Arts & antiques are having a trickier time, though. To understand why, it’s useful to get to grips with the metrics used by ATG. Of the existing auction market, only some is held by auctioneers that are clients of ATG. This is referred to by management as the "total hammer value". Of this smaller figure, the amount of sales won by ATG bidders is referred to as “gross merchandise value”. 

Within arts & antiques, gross merchandise value fell by 5 per cent year-on-year. Management said this was because more physical auctions were taking place, increasing competition. As a result, the division’s 'conversion rate' – representing gross merchandise value as a percentage of total hammer value – fell from 19 per cent to 16 per cent.

Across the group as a whole, the conversion rate – the proportion of total online auction sales that are conducted via ATG – remained flat at 33 per cent, helped by a strong performance from the industrial & commercial division. However, it is certainly a figure to keep an eye on, as gross merchandise value is a key driver of ATG’s own revenues.

That said, we remain convinced of ATG’s fundamental investment case. More auction houses are embracing the digital world, and if more companies join ATG’s websites the network effect will only intensify. Plus, management expects steady margins and high single-digit to low double-digit revenue growth next year, which isn’t to be sniffed at. Buy.

Last IC View: Buy, 893p, 14 July 2022