United Communications Partners Inc (UCPA)

[naturalborninvestor]

Look at this comparative analysis and tell me what game is played

Trying to put UCP fianancial data in a wider industry context, I came across Cospirit MediaTrack. This company is the partner agency for Local Planet in France. They provide the same services and, as we have learned from LPM, use the same technology as Tre Kronor Media. Just in another Western European region. The following information comes from April 2016, so it is quite recent:

http://www.cospirit.com/worlds-leading-independent-media-agencies-join-forces-to-form-new-global-media-agency-network-local-planet-horizon-media-the7stars-zertem-communications-group-media-italia-pilot-cosp/?lang=en

About the CoSpirit group:

Created in 1994, the CoSpirit Group is an independent marketing & media operational consulting group. The group specialises in optimising local or national marketing campaigns and media for three types of client: retail networks, local and regional authorities and brands.

Thanks to the launch of its Ambitions plan in mid-2012 and the high-performance digital tools developed by internal R&D teams to help customers optimise their actions, the group is enjoying very strong growth: 30% in 2013 and 39% in 2014 with revenues of EUR 11.5 million and a target of EUR 13.5 million for 2015. The group’s gross volumes for purchase of space also exceed EUR 225 million and the group expects this to grow to EUR 367 million in 2015.

The group is also pursuing its expansion internationally, where it generates nearly 10% of its revenues, drawing on the Local PLanet international network of independent media agencies, of which it is a member and shareholder.

The group also holds a 30% stake in Roamler France, a mobile phone application enabling a community of mobile users (Roamlers) to carry out field missions.

The CoSpirit group obtained the 5th highest rating in the RECMA qualitative ranking published in June 2015, where it also posted the strongest growth in business volume (+ 25%).

The group currently has 105 permanent employees based in Paris, Lyon and Tours.

There are some interesting information here:

- the company has generated similar growth rates in recent past.

- Cospirit only reports a fraction of the revenues of UCPA (23.96% in 2014; 34% in 2015), yet they employ 2.6 times as many people (105 full time jobs). If we superimpose Cospirit's size of workforce on to UCPA's financials, Cospirit should have approximately 5 million in administrative expenses. In order to maintain just a breakeven, the maximum direct cost of sales that Cospirit can afford is about $8.5m or 62.96% of the exp. 2015 revenues! Anything more would produce a loss for the company. Compare that to the 91% in cost of revenues that UCPA reports. They are world's apart. As if these 2 companies were operating in two entirely different industries and markets.

- Another interesting fact is the ratio of revenues to media billings. Cospirit reports a margin of 3.68% to 5.1% of total media spent as revenues. On the other hand, UCPA reports almost 50% of its media billings as “earned” revenues. For instance, in 2015, TKM Sweden reported 592m in SEK as media billings (which is roughly $70m in USD). Add to that an estimated max $10m USD from TKM Denmark and we get a figure of $80m in media billings for 2015 from UCP fully owned subsidiaries. Howcom and In Sight are irrevelant here because they are treated as equity investments and their revenues do not show up in the UCPA financial statements. That would result in 39.16/80 = 48.9% in revenues-to-billings ratio for UCPA. Compare that to the 4% expected by Cospirit! And yet, UCPA cannot generate a positive cashflow!?
To put the average 4% by Cospirit into perspective, UCPA should be responsible for media billings totaling $975 million (in 2015) to 1,250 million (in 2016).

As a result, I must conclude that revenues reported by UCPA are not of the same "type" as those reported by Cospirit. I suspect that a large part of media billings are classified as revenues. I simply have no other reasonable conclusion for this dramatic difference.