At £5m Market Cap, Lets Explore Group trades at c.40% discount to cash whilst it continues to offer its Home Based Entertainment VR offering and is homing in on a potential acquisition.
Lets Explore Group is a technology business that offers a range of VR entertainment. The company as of its last results reported strong growth in revenue. Much of this was attributed to its Location Based VR offering which it has now sold. This part of the business was sold for $25m and saw the company deliver a large portion of this cash back to shareholders, whilst retaining enough cash to look at a new aqcuisition.
The company have clearly done well to create a business they could sell on for such a large sum of money in a short space of time whilst retaining their other VR entertainment offerings such as OceanExplore and Vodiac VR.
Since selling their Location Based VR offering, the company have directed their attention to the other VR offerings as the company have seen growth opportunities here, now expanding these to learning experiences such as ‘Lets Explore Space’ and ‘Lets Explore wildlife’ including the likes of dinosaurs. You can read more about these in the latest RNS update
Whilst the above is of interest the company are now looking at an acquisition and have reported that they have homed in on a target and are completing due-diligence.
Critical for the company is finding an opportunity that shows growth potential and needs capital to take it to the next level. This could be a strong catalyst for the share price given it looks like a repeat of what they did with LBE (find a promising growth business, develop it and enjoy the revenue or potential sale of the business down the line)
The Opportunity
It’s probably no surprise that the share price has recently dipped back. This is primarily due to the fact that the company have returned cash to shareholders by way of the sale of the LBE part of the business and is to be expected, it’s like a drop when a stock goes ex-dividend.
But I also don’t need to tell you that we have been experiencing a rather horrendous market of late with few stocks managing to keep their head above water and don’t start me on the market makers who in some cases have been selling stock they can’t deliver (naked short)
But anyway enough about that lets just highlight why LETS could see some nice upside from this level:
Cash
The company reported cash of £7m at the end of June with a further $1.25m to come in Q1 2024 (the remaining part of the sale cash issued as a loan to the buyer)
With this amount of cash, investors can feel at ease they won’t have the begging bowl out any time soon.
Existing Business
Despite the sale of Location Based Entertainment, the company retain an existing VR business which they are expanding into other subjects as reported in the latest RNS and have an existing order pipeline for these in the run up to Christmas their busiest period. So essentially the company have retained a valuable revenue stream.
Acquisition
As previously mentioned, the company are now homing in on an acquisition target in their words: ‘Since the disposal of the Location Based Entertainment business, the Group has looked at several acquisition opportunities. It has now narrowed its focus and has entered into preliminary due diligence on a possible target.‘
The above part should generate some excitement given that the company clearly know how to acquire, develop and grow a business and return rewards to existing shareholders as evidenced by the sale of LBE for $25m! Watch this space on this one.
Market Cap / Valuation
Lastly, would you believe the current valuation of the company is just £5m, that’s a c.40% discount to fair value based on cash alone, excluding the existing revenue generating business’s and attributing no value to a Management team that have clearly delivered!
So with cash well above current market cap, existing revenue streams, capable management team closing in on what could be a tasty growth acquisition, I reckon there is strong upside from the current 2.5p level
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Disclaimer
Research materials prepared based upon my own analysis and research. Accuracy cannot be guaranteed and research notes should not be taken as investment advice. Please always do your own research.
