I’m drawn today to Yu Group (LSE: YU) as a possible Stocks and Shares ISA candidate. The small company had passed under my radar until now. But at the time of writing on Wednesday, the Yu Group share price has jumped 10% on the day.
Perhaps more remarkably, Yu Group shares are up more than 200% over the past 12 months. That has mostly come since 25 January, since when we’ve seen a 180% gain. So what happened to cause all that? Well, 26 January brought a trading update headlined “Strong trading and performance ahead of expectations“.
The company, which bills itself as an “independent supplier of gas, electricity and water to the UK corporate sector“, gave us an appraisal of its 2020 year. Chief executive Bobby Kalar spoke of “an extremely strong trading performance, accelerating throughout H2 2020“. He added that the company is beating market expectations for revenue, cash and profit. When that happens, market bullishness often follows. And looking at the Yu Group share price, that has certainly happened here.
Beating market expectations
But I need to see some figures before I consider buying Yu Group shares. Yu now expects revenue of more than £100m. Adjusted EBITDA is said to be “significantly ahead of market expectations“, though there’s no figure on it just yet.
In the early days of growth companies, I rate cash flow and liquidity as key things I watch out for. And the cash situation is looking good to me. The company reports a cash position of £11.7m, up a hefty £9.3m from 2019’s year-end figure of £2.4m. And we’re apparently looking at a bill-to-cash ratio of 99%. It sounds like Yu’s corporate customers are good payers.
There’s another thing I like, looking at this update. The firm says it has good forward visibility of revenue, which should take some of the uncertainty out of things. But after the recent skyrocketing, is the Yu Group share price an attractive buy now?
Yu Group share price valuation
But what are the risks? Well, it’s difficult to put any valuation on Yu Group shares at the moment. For one thing, Yu recorded losses in the past two years, so some of those trailing financial ratios don’t mean much at all.
Looking back, Yu reported net cash of £17.9m at 30 June 2020, higher than the year-end figure. And though there was just £2.4m cash at the end of 2019, six months previously the books had boasted a sum of £17.4m. So I’m definitely not taking that impressive 2020 year-on-year change in isolation. I want to get a proper feel for the trend.
Does it make sense to look for ongoing trends at all? In its latest release, Yu speaks of “successfully repositioning the group.” Does that mean I need to abandon previous accounts and see where the new version of the company is starting from?
I really am just taking my first look at this company, spurred by the soaring Yu Group share price. It’s boosted the market cap above £50m now, which is where I start to get interested. So I’m just exploring some of the things I usually look for, and working out which questions I’ll need to ask. Until then, I see the uncertainties and volatility around the firm as a risk. Full-year results should be with us in late March so I’ll be checking back.