CCM decides to take AIM
It is always good news when a channel company debuts on a UK stock market. The financial reporting criteria imposed on publicly quoted companies make a hack's life so much easier.
UK resellers and disties are popping up on the Stock Exchange and Aim with increased regularity. It helps, of course, if the company has a story for investors to latch on to. This can be tough for a commodity supplier - even the City recognises a distributor when it sees one.
Take components distributor CCM Distribution. It made its debut on AIM on 1 July, in a placing with private investors valuing it at #16.5 million.
The company is raising #2.5 million, through five million shares at 10p and 20 million shares on behalf of the founders, who will retain 84.8 per cent of the enlarged issue share capital. Shares rose 1.5p on the first day of trading. To date, CCM has funded growth from internal resources and it remains cash-positive. It will invest the #500,000 raised in the float on building up a public profile.
CCM should be regarded as a borderline AIM candidate. But it too has a story to tell. CCM carries 400 product lines, designed to build computer installations of all sizes. Founded in 1992, it is profitable and growing fast. But growth appears to be easing. Turnover in the six months to 31 March was #12.66 million compared with #22.53 million in the year to 30 September 1997. Turnover was #8 million for the year to 30 September 1995. The PE ratio at placing price is 12.5, reflecting CCM's status as a lowly rated distributor. The ratings carry a substantial premium over, say, Datrontech and Ideal Hardware.
But CCM reckons it has great differentiators - a knowledgeable, enthusiastic telesales team and a top prospects database. It claims not to enjoy higher gross margins than its rivals but says it is better at pruning costs.
An internally commissioned customer satisfaction survey shows CCM has a good handle on the logistics - timely delivery and a workable returns policy. Simple things, but not easy to do well.
And unlike Ideal Hardware or Datrontech, CCM is not a franchise-led distributor.
It is a trading organisation, sourcing components as and when needed.
No sales volume commitments, no inventory tie-up. This, it argues, gives flexibility in a fast-moving market. This is perhaps the best rationale for being a broker I have come across.
Nevertheless, CCM operates in a market where volume is king. To make it into the Datrontech, Karma and Actebis league, it needs to change from a trading organisation into a fully fledged distribution outfit with franchises.
It is more difficult to live off your wits when you are a #200 million company than when you are a #20 million concern.
As CCM grows, it will be a challenge to maintain control over back-end costs. It seems improbable that it can maintain profit ratios at higher levels than distribution peers for too many years.