small cap corner
Applegreen The largest stock covered in this review and the largest new listing on AIM this year is Applegreen, a Republic of Ireland based petrol forecourt retailer. By volume the firm has a 12% share of the motor fuel market in Ireland and at the end of 2014 had 96 sites in the country. In the UK Applegreen had another 54 sites, with two located in Long Island in the US. Site numbers have seen rapid growth since the company’s foundation in 1992 and as at 15th June this year the total number of sites had risen to 174. These are divided into so called Service Area Sites – large sites with a significant retail offering located near to motorways – and the smaller Petrol Filling Stations (PFS). The company’s main source of revenues come from the sale of fuel but Applegreen also derives income from food via its own brands aCafé and Bakewell and concessions of international food brands such as Subway, Costa Coffee and Burger King. Other income comes from selling items such as tobacco, newspapers and the like. By revenues Applegreen is one of the largest on the whole of AIM, making €937.3 million in the year to December 2014, up by 18% compared to 2013 after increasing its total number of sites from 119 to 152. In fact, revenues have grown at a compound annual growth rate of 24% over the past four financial years.
Selling fuel is a low margin business, averaging just 6% in 2014. However, food is a lot more lucrative, with margins of 57%. This is demonstrated by the fact that fuel revenues in the Ireland business were ten times that of food during 2014, while gross margins from both were almost identical. At the bottom line Applegreen made a net profit of €12.3 million in 2014, although net cash
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from operations was better at €26.2 million.
Strategy Applegreen has a simple strategy which is focussed on acquiring and developing new sites, along with upgrading and rebranding existing sites. At IPO the company raised €70 million (£51.1 million) for itself which will be used to accelerate the expansion of the estate in Ireland and the UK from the current c.20 sites a year. In its admission document the firm said that it had a “strong pipeline” of such new sites. The money will also be used to upgrade and refurbish up to 70 existing sites in order to generate long-term incremental income – the company estimates that a rebranding at a typical PFS site in Ireland costing €270,000 could add €100,000 to annual EBITDA. In the US, the firm is looking to have 10 sites operational in the north
east of the country by the end of 2016. Opportunistic acquisitions will also be considered. The strategy is focussed on taking advantage of structural changes in the retail fuel market, which has seen oil majors exit from front line fuel retailing to focus on exploration and production, thus providing opportunities for independent retailers. The strategy is also driven by the solid growth in GDP seen in the UK and Ireland in recent times and the growth in disposable income that comes with it. Notably, figures have just been released which show that Irish GDP grew by 1.4% quarter-on-quarter in the three months to March, and by 6.5% compared to a year ago. The economy grew by 5.2% in 2014, making it the best performing in the European Union. Also in Ireland, a recent policy document from the National Roads Authority (NRA) highlighted a total requirement