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Appreciate Group plc

Solid core + digital disruption = unique model

01 Sep 2021 / Corporate research

Appreciate (APP) gives investors potentially explosive growth through new digital offerings in the gifting/engagement markets, where its share is just 3%. This is uniquely combined with a dominant 71% market share in the consumer pre-paid Xmas savings market, which brings decades of key partnership management experience. FY’21-22 has been a challenging period for Xmas savings, but APP is generating the profits to fund the digital growth. Digitalisation not only opens new markets (a Europe comparator quadrupled sales in two years), but also improves efficiency and customer service, and typically sees share ratings double those of non-digital models.

  • Digitalisation: APP has just a 3% share in the ca.£7bn non-Xmas savings market, and, with its digital model, can attack it as a fintech new entrant. It has already reduced new corporate on-boarding times by 90%. The European case study, and UK ratings, imply a significant re-rating on successful digitalisation.
  • Other positives: APP’s multi-retailer products can be redeemed at 24,000 retail sites, as well as online. For many, browsing is enjoyable, and so this has value over online-only models. APP has managed redemption and distribution partners for 50+ years. It has 524k consumer and ca.39k corporate customers.
  • Valuation: We use a range of valuation approaches, including a Gordon Growth Model (GGM), a Discounted Dividend Model (DDM) and a peer comparison. On the assumptions we outline later in the report, the average indicative valuation is 61p. As APP is a growing business, there is upside potential moving forward the base year.
  • Risks: FY’21/’22 was a challenging period for Xmas savings. The digital model is positive, but it is still being developed, and the transition is not risk-free. Anything adversely affecting redemption/distribution relationships would be negative. There is a sensitivity to macroeconomics and near-term customer behaviour.
  • Investment summary: Combining a profitable core, decades of experience, especially in managing key partnerships, and the latest technology, give APP a unique fintech strategy. It is at the start of the transition to a digital model, but has already attracted new partners like PayPoint. Comparable models are growing explosively, and are on higher valuations. The accounting rules are unhelpful to understanding the business. Any fundamental strategic change introduces risk, and there is some economic sensitivity.
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