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AIMprospector

Profitable and dividend paying, Christie Group looks ideally positioned to benefit from the changing UK economy. The smallcap share revival that began in 2009 seems to have passed by Christie Group. However, the ongoing upturn in the UK business environment could take profits back to levels not seen since the global financial crisis. If management can secure such a recovery, then the upside in the shares could be significant. Christie Group comprises two divisions: Professional Business Services (PBS) and Stock & Inventory Systems & Services. Recent announcements from Christie’s management illustrate how both of these divisions could increase profits significantly.

both divisions could increase profits significantly At the halfway stage this year, it was announced that the Stock & Inventory Systems & Services operation had delivered an operating profit of £0.8m: a 44% increase in operating profit on the previous year. However, the PBS side disappointed, pushing the group to a £0.3m operating loss for the first six months of the year. Despite this setback, Christie announced that it still expects 2013 to be profitable. Obviously, this can only be achieved with a significantly better second half. 4

Christie’s PBS division specialises in the valuation, sale, financing and insuring of businesses. Trading within this part of the Group went into steep decline following the collapse of Lehman Brothers in 2008. The magnitude of the change in trading within the PBS operations can be seen from business transaction statistics. Back in 2007, 869 UK businesses were sold to other UK buyers. In the five years since, the deal count has averaged just 361 sales a year.

economic conditions could deliver the significant upturn in deals that Christie needs to thrive In 2007, Christie’s PBS division reported an operating profit of £9.9m on sales of £51m. In 2012, this division reported revenues of £30m, resulting in an operating profit of just £0.6m. These figures reveal how Christie’s profits are strongly geared to business transactions. Fortunately, current economic conditions could deliver the significant upturn in deals that Christie needs to thrive. As the economy recovers, asset values and business confidence increase. Somewhat counterintuitively, insolvencies can also rise as overstretched businesses struggle to meet increased working capital demands. Lenders become more likely to remove support as the market value of the assets (real estate etc.) used to secure their loans increases. Many businesses in the UK are

currently under a stay of execution while interest rate swap mis-selling compensation claims are decided. Add in expected interest rates rises and a marked improvement in trading within Christie’s PBS division looks increasingly likely as insolvencies rise and more businesses change hands. The Group currently has a net debt position of around £3m. With a share price today of 114.5p, that gives an enterprise value of £33m. Considering the Stock & Inventory Systems & Services operation is already enjoying profitable growth, there seems little in the market rating for a recovery in PBS.

still expects 2013 to be profitable Shareholders may be further encouraged to learn that Lord John Lee, one of the UK’s most celebrated private investors, has made Christie Group one of his largest AIM holdings. Christie Group (LON:CTG) FOR Highly geared to economic improvement Still profitable, despite tough markets AGAINST Some recovery expectation already priced in Decline in licensed trade in the UK Market Cap Bid:offer 52week low:high P/E (forecast) Yield (forecast)

£30m 110p:119p 59p:116p 43 1%

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