Grays Ecommerce Group Ltd posts big profit jump: Is it time to buy?

Grays Ecommerce Group Ltd (ASX:GEG) owns Australia's dominant online auction site, but competition is fierce.

Andrew Mudie

Andrew joined the growing team of Motley Fool freelance writers in mid-2013 following years of personal development as a passionate self-taught sharemarket investor. At the time, Andrew was an engineer by trade, writer by hobby, and an investing nerd by passion who spent far too many breaks reading, writing and learning. Andrew’s first investing lesson came with his first stock selection in 2011 when takeover rumours caused a spike and subsequent plunge in the share price of Woodside and then the 21% fall in the market through mid-2011. The next four years of investing saw Andrew dabble in a vast array of strategies until settling on his favourite investment methodology, which is closely aligned with that of the Motley Fool: Fundamentals-based long-term buy-and-hold of great companies at great prices.

Published February 27, 2015 2:59 pm AEDT

What: Grays Ecommerce Group Ltd (ASX: GEG) today reported an incredible 67% increase in earnings before interest, tax, depreciation and amortisation (EBITDA) for the six months to December 31, 2014.

So What: Grays Ecommerce Group Ltd, better known as the operator of Grays Online, Deals Direct, OO.com.au and Top Buy auction and sales websites, reported sales from existing operations of $256 million, up 35%, revenue of $82 million, up 7%, and EBITDA of $5.6 million, up 67%.

The group was formed from the merger between Grays (Aust) Holdings Pty Limited and DealsDirect owner Mnemon Limited in November 2014 and now divides the business into two divisions; business-to-business (B2B) sales and business-to-consumer (B2C) sales. The half-year result was driven by a particularly strong performance from the B2B division.

The division primarily consists of the grays online, grays mining and grays asset services businesses. Grays' clients include major corporations, insolvency practitioners, financiers and banks that are provided access to a full range of valuation and project-management functions. Division revenue surged by 43% and EBITDA rose by 43%, however this growth rate is unlikely to be sustained due to a number of one-off major event insolvency sales.

The B2C division was more subdued, with revenue 7% lower but EBITDA 8% higher than a year previously.

What Now: Grays expects to see operational costs fall over the next six months as the group consolidates staff and warehousing from the merged businesses. Overall, business growth is expected to slow in the second half but earnings are expected to be significantly higher than in 2014.

If I were a shareholder in Grays, I would consider the competitive advantage the group holds over the likes of CatchOfTheDay, OzSale, Kogan, Appliances Online, The Iconic, and the various online clothing stores. The Grays Online brand gives certain types of access to action deals that are fairly unique, but the group's other brands are competing in a tough, low margin industry.

Automatic Renewal

By taking up this offer, you will also be enrolled in our auto-renewal program, which is our way of making your ongoing subscription easier by ensuring uninterrupted service. Don't worry, though – you're not locked in, and can cancel your auto-renewal at any time before each 'anniversary' date without question or penalty.