Auction Technology Group a good inflation hedge

There was a chance that Auction Technology Group (ATG) could have become another 'lockdown stock' which would get hit when economies re-opened. The company, which connects auction houses with bidders online, received a boost in demand when people were stuck at home. But these half-year results suggest buyers are happy to continue pursuing antiques from the comfort of their own residences.

The company is split between arts and antiques (A&A) and industrial and commercial (I&C) arms. Both reported revenue rises of 16 per cent on a pro-forma basis. A&A's growth was partly driven by LiveAuctioneers, a leading US company that was acquired last autumn. The business is growing quickly too: compared with the prior six months, gross payment transaction value processed by LiveAuctioneers increased 34 per cent.

I&C has benefited from supply chain disruptions. This has caused inflation in the primary asset market which has subsequently driven up prices in the second-hand market. Also, as primary assets increase in price, bidders turn to cheaper second-hand products which boosts volume.

ATG is a platform business, meaning it has a small amount of working capital. This means it has a high adjusted free cash conversion rate of 90.5 per cent. Compared with last year, adjusted free cash flow rose by 68 per cent to £24.3mn.

Its better-than-expected first-half performance meant management raised guidance and now expects low double-digit pro-forma revenue growth for the full year. In the medium-term, it expects its adjusted cash profit (Ebitda) margin to be in the mid-to-high 40s.  

The market has noticed the strong growth and good cash conversion. ATG is currently trading on forward PE of 36.5, according to FactSet consensus estimates. Broker Peel Hunt expects EPS to grow to 38.3p in 2024, which would give a more appealing PE ratio of 25.

Expensive stocks are not in vogue but it is hard to find much to dislike about ATG, except that it might get caught up in the wider slowdown in consumer confidence. Bidders tend to be older and higher earners, though, which should insulate it from the cost of living crisis. Buy.

Last IC View: Buy, 1,374p, 2 Dec 2021