2 Bonus, 3% Yield: 54-Yr-Old Smallcap Co's Dividend, Q4 On May 21; Stock To Rise 60% Ahead; Highest TP Rs 2650

MPS Ltd, a smallcap IT stock, will be in focus this week due to its final dividend recommendation and Q4 results for FY24, scheduled on May 21. Ahead of the key results, brokerage Keynote Capitals has initiated coverage on the stock. The brokerage is highly bullish on the company due to its robust growth of existing business and strategic inorganic expansion. There is potential for nearly Rs 1,000 to 60% upside in MPS shares ahead!

The e-learning company aims to continue running the business on dual-growth engines of organic as well as inorganic growth and achieve the guided scale of Rs. 15 Bn by FY28.

According to Keynote, MPSL is positioned for further expansion and is dedicated to continuous growth. Recent actions include shifting focus to acquiring companies exceeding $20 Mn in sales, to triple its topline to Rs. 15 Bn by FY28.

Further, MPS plans to use both organic and inorganic growth strategies. Organically, it targets a blended revenue growth of 14-15%, alongside a couple of strategic acquisitions annually Also, in terms of funding, MPSL is well-equipped with strong cash generation, a debt-free status, and the ability to leverage its balance sheet if necessary.

Up till now, Keynote stated that MPSL primarily targeted distressed companies at discounted valuations. However, there has been a noticeable strategic shift. MPSL is now open to acquiring well-managed companies, even if that involves giving a reasonable premium. This transition indicates a shift towards a hybrid acquisition strategy, which we anticipate the Company will maintain moving forward.

In Keynote's view, the Company has not only acquired targets at fair prices but has also avoided excessive cash accumulation. This was achieved through dividend payouts and share buybacks. This prudent strategy is anticipated to persist in the future.

Hence, on the valuation, Keynote said, "We are confident that the combination of robust growth in the existing business and strategic inorganic expansions will lead to substantial value creation in the future. Furthermore, considering MPSL's strong fundamentals and growth projections, the current valuation of the Company does not appear excessively high."

Finally, the brokerage concluded "We initiate coverage of MPSL with a BUY rating and a target price of Rs. 2,650 (25x FY26E EPS), resulting in ~61% upside from current levels."

On May 21, the company's board will meet to consider, approve and take on record the Audited Financial Results (Standalone and Consolidated) of the Company for the Fourth Quarter (Q4) and Financial Year ended 31 March 2024.

Also, on Tuesday, the board will consider and recommend the final dividend, if any, for the Financial Year ended 31 March 2024, which shall be paid subject to the approval of the shareholders in the ensuing Annual General Meeting of the Company.

Earlier, for FY24, MPS turned ex-dividend on November 6, 2023, for an interim dividend of Rs 30 per share. In 2023 alone, the company paid up to Rs 50 dividend per share which also included a dividend of Rs 20 per share for FY23.

At present, MPS shares have a dividend yield of 2.99%. Apart from this, the company also has a history of rewarding investors with bonus shares in the ratio of 1:1 each in January 2001 and 2002 of the same month.

On BSE, MPS share price is currently at Rs 1668.30 apiece, up by 0.61% on May 18 with a market cap of Rs 1668.30 crore. The stock's 52-week high and low are at Rs 1,884.20 and Rs 989.95 apiece respectively. In a year, MPS shares are up by 64%.

MPS, a leading global provider of platforms, and content, and learning solutions for the digital world, was established as an Indian subsidiary of Macmillan (Holdings) Limited in 1970.