Thought I'd do some research into this weirdly named company which was floated on AIM last November (the name means 'pertaining to hedgehogs', for some obscure reason..).

However the company itself seems a pretty normal beast, operating in the areas of property lettings services, insurance, housing management, building consultancy and housing maintenance.

Its website is:

http://www.erinaceous.com

It gives comprehensive details of all aspects of the company and seems to be regularly updated for investors.

Among the reasons I think it's of interest are:

-The extremely rapid growth shown since formation in 1999 -turnover has grown from 4.3m->43m in past 5 years (admittedly through both organic and acquisitive means).

-Profit has grown from 570k to 6m during same period - amounts to 40% ave. compound p.a.

- Directors have aggressive organic and aquisitive growth strategy and earnings look set to continue growing strongly.

- Dividend yield of around 3%+

This is what Every Investor had to say about ERG just after it floated in Nov 2003:

'Dealings began on Thursday, 27 November, in a property services company, Erinaceous, that I expect to be a star performer. The company has grown explosively since it was formed in 1999 fuelled by a mixture of acquisitions and strong organic growth. I expect the same mixture, helped by having a share quote, to keep the group growing strongly. On that basis the rating at the current price of 140.5p, up 10.5p on the 130p flotation price, looks modest for a company in a sector where ratings are normally significantly higher.

Chief executive and co-founder, Neil Bellis, believes that Erinaceous has stolen a significant march on the competition by his strategy of positioning the business as a one-stop shop providing services to both the private and public sectors. The name, incidentally, which bizarrely means 'pertaining to hedgehogs', was chosen to help the group stand out and also becuase the plan is to be an umbrella for a growing series of companies within the group.

In pursuit of its one-stop-shop goal there are already a number of activities within the group. These include residential lettings services, insurance services, managing public sector housing, managing blocks of flats, building consultancy and facilities management.
The breakdown between public and private sector is approximately one third:two thirds. However Bellis says this may change, at least in the short term, if the group is successful in one of two bids on the table for large public sector contracts.

Selected in 2001 to provide housing services to Westminster Council
The public sector housing business began trading in April 2001 when the group was selected to provide housing services to 40 per cent of Westminster City Councils housing stock. In addition to managing 7,500 properties the group is looking after two major urban regeneration projects and is responsible for delivering homelessness assessment and advice services across the City of Westminster. In October 2001 the London Borough of Lewisham awarded the division a contract for the management of 1,400 council homes.

Another division that has produced dramatic growth is the residential letting services business. The heart of this operation is providing tenant references on demand to 5,000 letting agents across the UK. Other services including rental guarantees and other forms of insurance.

The residential lettings operation provides the group with a high-quality recurring revenues stream. Over 1500 of the lettings agents using the service pay the group a regular monthly subscription for access to the services at discounted prices. Because the service can be accessed on-line response speeds are quick.

Five per cent market share leaves scope for growth
Although Erinaceous is already the market leader in this fast-growing market it has a tiny market share, around five per cent, with ample potential for continuing growth. This is also the only division within the group that already operates on a national scale. The other divisions are heavily focussed on London, creating obvious scope for the group to grow by rolling out its core skills across the country.

Another feature of the residential letting services operation is that it is addressed at both the private and public sector. For example, councils can use the service to encourage letting agents to become involved in what some might see as the chancy area of letting property to people on housing benefits. Erinaceous helps the agents take up references and offers rental guarantees based on its assessments. Councils may then use public money to pay for the rental guarantees.

Bellis notes that a key element in the groups strategy is to make the group as recession-proof as possible. This means, for example, that he has no interest in going into the estate agency business. Instead the emphasis is on long-term contracts with public sector bodies and providing key outsourcing services which clients will need regardless of what is happening to property prices.

Residential letting services is the single largest division with around 45 per cent of turnover. The smallest division is property services with around 20 per cent. This division provides professional services for building design, maintenance and construction management projects.

It also includes a blue-collar maintenance division providing repairs up to around 1,000 in value, cleaning services and help with recruitment of temporary and permanent personnel like porters. This facilities management division is currently small and is a likely candidate for growth by acquisition.

Looking after 16,000 London homes for resident management companies
The group also has a residential management division that is responsible for looking after 16,000 homes throughout London on behalf of resident management companies.
As well as adding credibility to the groups aim to be a one-stop shop the wide range of activities and present narrow geographical focus give the group great scope to make acquisitions.

The group has moved rapidly to build a strong position in its core markets. The markets the group is addressing offer ample room for further growth with large chunks of new business available to be won. I also expect the group to continue making acquisitions using a mixture of shares and cash. A steady flow of developments and strong growth in sales and profits should keep the share price moving steadily higher.'


Financial services group Credo did this piece of research in Dec 2003:

http://www.credogroup.com/news/Dec03/newsDec03art2.html

All very positive stuff so far.

The company posted its maiden results in June showing a 71% earnings leap with adjusted pre-tax profits of 6m (up 52%):

http://www.uk-wire.com/cgi-bin/index?company=ERG

2004 Annual Report in *.pdf format:

http://www.erinaceousir.com/erinaceous/ir/reports_presentations/reports_archives/2004/ar2004/ar2004.pdf


House broker Collins Stewart are forcasting profits of 8.4m on 67.2m sales for 2005 giving EPS of 13.5p and a 4.5p dividend payout. This equates to a forward PE of just 10.5 which looks cheap to me for a quality support services firm with predictability of its earnings.

All in all this looks a great, low risk, high growth stock with a decent yield thrown in for investors with a medium to long term view. It should, IMO, get significantly re-rated in line with its sector.

DYOR - No investment advice intended.

Dave

ERG is a company to stay away from. In fact Evil was right to sell a few weeks ago when it was brought into fraudulent investigation. Continue to sell at 240p.

A very profitable shorting...


Erinaceous says in talks with lenders regarding credit facility terms, breaches - AFX

LONDON (Thomson Financial) - Erinaceous Group PLC said it is in talks with its lenders regarding the terms of credit facilities and certain breaches of the covenants in its credit agreement.

The facilities management company, reacting to press speculation, said it has made good progress towards reaching an agreement with lenders on relevant waivers and facility amendments.

Erinaceous also said the lenders have been supportive and it intends to obtain proposed amendments prior to the issue of the its interim results on Sept 25.

TFN.newsdesk@thomson.com

Excellent news 4 me...

Consensus Business says offer talks for Erinaceous Group terminated - AFX


LONDON (Thomson Financial) - Consensus Business Group said it has terminated discussions on a possible offer for the facilities management company Erinaceous Group PLC.

Consensus Business had on Oct 1 said it has not made an approach for Erinaceous Group, but that it may make an approach in future.

TFN.newsdesk@thomson.com

Erinaceous calls in administrators KPMG after failing to reach agreement with lenders today.


THE END.