Earnings Review Q1 2025 ($)
I sold a stock..
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With most of the names of interest having reported earnings this busy earnings season, I thought it would be time to review some of the most notable ones! Generally I’ll mostly stick to reports that were ‘bad’ to identify key issues worth thinking over. That said, it’s been a generally strong start for growth (and SaaS!) for the year. Could be another headfake, but encouraging to see the rise overall.
Anyhow lets start:
Alpha Purchase (7115.JP)
Overall, Alpha Purhcase is playing out as I expected specifically for this earnings. As you may have seen in the Chat section - I commented in Q3 that earnings would ‘at least’ meet guidance which it broadly did and that the CEO was telegraphing that they were expecting some margin expansion in FY25 based on the Q3 call - and they guided just that.
As a quick summary:
Q4 Revenues were up 11.7% for MRO and -2.6% for FM
OP remained flat overall with MRO +13.6% offset by -17% for FM
This was overall a continuation of what played out in the first 9M, which is that the FM segment was weak as large renovation projects by customers are being delayed. For e.g. given the strong tourism in Japan, Apa hotel is currently trying to maximise room capacity - such renovation would be an expensive opportunity cost. On the other hand, MRO was stronger than initially expected. To me this is the most important data as I believe MRO is the main driver for AP. Breaking this down further, the sales to SMEs via Askul was negative (est -2 to -3% yoy) because these smaller companies have been struggling with inflation. Conversely, the enterprise segment which is 80%+ of sales is doing really well. Again this is a positive as enterprise is the key growth pillar.
The strength of MRO has offset the weakness in FM to bring the full year results roughly in-line with what was initially guided. (-2% miss on Revenue and +3% beat on OP). Which was overall satisfactory. More importantly the market was not interested in Alpha Purchase as it’s been an ‘investment year’ for them which led to pretty flat profit growth and the stock has moved that way. However, guidance confirmed what the CEO hinted in Q3 earnings call which was that we’re now entering the period of margin expansion i.e. we should be expecting decent profit growth. How much? Well the CFO previously said they want to target an annualised sales CAGR of double digits, so with some margin expansion I don’t think low to mid teens OP growth is too difficult.
Having listened to the Q4 earnings I believe that the company might be severely sandbagging their guidance. This is no big surprise, management has shown a tendency to do that. Putting ourselves in their shoes I think that they have added incentive to do that now, given that they ‘only’ met their guidance last year rather than exceeding it. FM business expects the large reno projects to come back online and thus drive a 15% yoy revenue growth - minding that it’s coming from a low base. This segment can be volatile in any given year. MRO on the other hand ‘only’ expects 9% yoy growth.
There’s a couple reason why I think this is conservative: