Trade Me Group

By Dan Stratful

Friday 4th May 2012

Trade Me Group (NZX: TME ) is undoubtedly the ‘market darling’ of the NZ sharemarket at the moment and its shares have performed well since their IPO, and have now exceeded most broker’s target prices which range from $3.50 - $4 per share.

TME was founded in 1999 as an auction website offering a range of goods from general items to real estate to motor vehicles. TME was acquired by Fairfax in 2006 for $750 million with Faixfax selling down its investment via an IPO in December 2011, listing the shares on the NZX at $2.70 per share. Today, Fairfax retains a 66% stake in TME which has grown its member base to 2.8 million users

Fund Managers’ supported TME during its IPO even though some market commentators thought the shares were fully priced and at the top end of the indicative range.

However the IPO has been a success, with the company trading above its $2.70 issue price from the outset, and TME’s interim results for first half ending 31 December 2011 (1H) largely met its prospectus forecasts.

1H EBITDA of $52 million was up 9% on the prior year, and 2% ahead of the prospectus forecasts, net profit of $36.4 million was up 5% on the prior year, and revenue was slightly ahead of expectations and up 13% on the prior year.

TME maintained its earnings and dividend guidance from the prospectus and reports that Mobile phones are a key focus area, as more and more users are accessing the site from smartphones.

Another area of growth for TME is the sale of new goods which already make up 40% of items sold on the site, and it will work with retailers to further develop and integrate this sector.

Internet stocks such as TME, often trade at high valuations, and the recent surge in TME’s share price is due to its acquisition of AutoBase. Its purchase of vehicle listing aggregator AutoBase moves TME’s stake from 25.4% (acquired in 2005) to 100% and AutoBase should contribute positively to TME’s earnings with its annual EBIT of $3.2m (up 18.5% year on year) and net profit of $2.3m.

At $3.87, TME’s shares are fully valued for now but are worth buying on price weakness.

Status: HOLD

TME’s shares today traded at $3.87

For portfolio, sharemarket and fixed income enquires contact:
Dan Stratful at Investment Research Group (IRG)
Authorised Financial Adviser (AFA)
0800 437 8489, 09 304 0232, dan.stratful@irg.co.nz
**A disclosure statement is available, on request and free of charge.

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