2016 has been a significant year for CML Group Ltd (ASX:CGR). CML Group Ltd has been transformed by disposing of its payroll services to concentrate resources into its fast growing debtor finance division.
To this end CML Goup has recently acquired 2 competitors (Cashflow Advantage and 180 Group) and is now in the process of rebranding the businesses under “Cashflow Finance”.
This is how invoice finance works. (source CML Group Ltd website)
Debtor Finance at a glance
Cashflow can make or break a business. Debtor finance, also known as invoice factoring, can streamline cashflow, making income regular and reliable.
It is not a loan.
In a nutshell, debtor finance means that when you set up your facility with a provider, upon invoicing a client, that provider will pay up to 80 percent of the invoice to you, often within 24 hours of it being lodged. When your client pays, you receive the rest, minus a small fee. No waiting and no worrying.
http://cashflowfinance.com.au/
CML Group – 2016FY and Outlook
Comments
From its 2016FY results we can see that CML Group Ltd‘s growth has started to accelerate with its move into invoice/debtor financing. While the numbers are impressive the growth hasn’t been without its hiccups. Just 12 months ago a major debt went bad leaving a substantial hole in the company’s bottom line. While the threat of bad debts is part of doing business, the risk has been reduced with the growth in the loan book size. This means any single bad debt will now have less of an impact.
Management
As I have written before, I like companies where the original owner still holds a substantial slice of the company. CML ticks this box with the chairman and founder of CML holding around 10% of the register.
Also on the plus side I liked the addition to the board back in 2015 of Geoffrey Sam, primarily due to his previous experience on the board of Money3 Corporation Limited (ASX:MNY) another company I rank highly in the small cap space.
Catalyst
When looking for companies with the potential to “multibag” it is important to find possible catalysts which might make this occur. For CML Group I can see 3 possible catalysts.
1. Continued Acquisitions
2. Large New Client wins
3. Takeover target
Tips for new investors
As every seasoned investor knows, there is no such thing as a “sure thing”. Even the very best business ideas can come unstuck when unforeseen problems arise. When I look to invest in small companies I look for companies that are cash flow positive and a business that I can understand. This way the company will not be continually asking me to provide more capital and I am able to foresee external problems before they impact the business substantially.
Disclosure:
Please Note: None of the above should be considered investment advice. These are my own opinions based on a number of years market experience. Please do your own research and consult a qualified financial advisor if you wish to invest.
I have been meaning to add this information. Very important changes for CGR funding http://www.asx.com.au/asxpdf/20170324/pdf/43h0ppmn638v2z.pdf