Small Talk: Dotcom survivor is a Euro-rival eBay would do well to bid for
Monday, 26 March 2007
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The US online auctions giant eBay would do well to buy QXL Ricardo, its smaller London-listed European rival. After a several troubled years amid the fallout from the dotcom bubble, QXL has enjoyed a remarkable renaissance and is now in better shape than at any time in its 10 year history.
There is no doubt that the group is a serious opponent to eBay in some parts of Europe. In fact, in Poland, Switzerland, Norway and Denmark it is a clear market leader. And here are some even more surprising statistics. In Poland, QXL boasts a market share of 95 per cent versus eBay on just 2 per cent while in Switzerland its share stands at 70 per cent with eBay on 30 per cent.
QXL is a very profitable enterprise. For the year to the end of March 2006, it made £9m on sales of £29m. In the current year, profits are tipped to rise to £15m and again to £21m in 2008. However, these forecasts could prove conservative given its plans to expand into two or three more Eastern European countries this year. Broadband internet penetration in the region is rising fast, thereby greatly boosting the size of the market QXL addresses.
Moving into new territories should be relatively easy for QXL. The company has a flexible technology platform that can be transplanted easily and, importantly, at very little cost. In countries like Bulgaria, Slovakia, Croatia, Slovenia and Serbia, it would face no competition. All this means the financial risks associated with its expansion drive are small.
This is likely to be a big worry for eBay, but it need not be. The US giant could easily buy QXL and so put an end to all its problems in Europe. It boasts a market capitalisation of £22bn compared with £372m for QXL. By swallowing the group, eBay would not only remove a potential competiton in the battle for market share in eastern Europe but would overnight become the dominate operator in Poland, Switzerland, Norway and Denmark.
The US giant has a track record of making acquisitions in countries where it has not succeeded by itself. Having failed to make headway in the Sweden, it quit the country only to return in 2006 via the acquisition of Tradera, the country's biggest online auctioneer. Last year, eBay also bought Baazee.com, India's largest online market place. And it is not scared of paying top dollar for strategically important assets. It has been known to pay as much as 10 times sales for some companies. This equates to a take out price of 1,260p a share for QXL. On Friday, the UK group's shares closed at 870p.
In 2003, QXL stock traded as low as 6p. £1,000 invested in the company back then would be worth nearly £145,000 today. However, only the bravest of investors are likely to have done so as those were dark days for the company.
In January 2003, the group lost control of its key Polish division after a coup by the local management team.
The dispute was only resolved in June of last year. The price QXL paid to get back control of the unit - local managers were given a 24 per cent stake in the company - was criticised as being too high at the time.
Today it looks to have been well worth it. Should eBay make a bid for QXL, it will start to look like the deal of the decade.
Ashworth's latest quest looks strong
Gary Ashworth, who produced a 1,000 per cent return for investors from recruitment group Abacus in the late 1990s, is looking to repeat the trick with InterQuest, his latest AIM venture. InterQuest is a specialist IT recruitment firm founded by him in 2001 and floated on London's junior exchange in May 2005 at 55p.
Its shares have performend strongly since the listing and closed at 128p on Friday. They are likely to gain further ground next week when the group posts its annual results. Readers can expect a solid set of figures on Friday with profits up to around £2.7m, from £1.3m in the previous year. Sales should top the £50m level.
Mr Ashworth, who is executive chairman of InterQuest and its biggest shareholder, brought Abacus to the stock market in 1995. It was taken over in January 2000 after a tenfold rise in the value of its shares. Luke Johnson, the chairman of Channel Four, is a non-executive at InterQuest and is its second biggest shareholder. Last year the group doubled in size after making acquisitions worth £11m.
