Free share tips posted weekly! This week’s free share tip is Vianet Group (VNET).

AIM-listed Vianet Group released a trading update last week and on the face of it the details provided were reassuring. Plans to return to paying dividends next year would be a particularly welcome development for long term shareholders. However, having held up well immediately following the news the shares have now dipped and there is an opportunity to buy in at an attractive level ahead of interim results, which are due to be released on 7 December.

The company joined AIM in 2006 and has grown from its core beer monitoring business both organically and through strategic acquisitions. It is now involved in the provision of internet enabled, cloud based, telemetric services to the hospitality, unattended retail vending and remote asset management sectors. The Smart Zones division provides quality management, business intelligence and waste management services to the drinks retailing industry. The Smart Machines division provides real time monitoring, business intelligence and data insights for unattended vending machines. This is useful as it maximises operational efficiency, stock control and cash flow.

There was strong recovery in revenues through the first half, covering the six months to 30 September 2021, with turnover up 55% to £6.3m. This compares to £4.1m during the same period a year earlier and £8.4m in the six months to 30 September 2019. Turnover was slightly above expectations for the first six months of the year given restrictions which were in place and supply chain costs were also marginally higher. New device sales were said to be encouraging but recurring revenues from long term customers have recovered to being approximately 90% of turnover.

There has been a focus on cash management from the outset of the pandemic. The company is confident that it has sufficient funding to support ongoing requirements and the planned investment for a sustained period. Subject to no further lockdowns or restrictions on the hospitality sector and no deterioration of semi-conductor supply, cash generation in the second half should enable the reinstatement of dividends in July.

Although Vianet Group was clearly hit by restrictions relating to Covid-19, it remains in good shape and we believe that the business has a far brighter future than the current valuation suggests. Given the trading update released last week it is surprising that the share price has not moved higher. The current price may well prove to be a blip and having been very weak in recent weeks a bounce is overdue. We have followed the company during the period it has been listed on AIM and see a return to at least 100p by early 2022 as highly likely. Upcoming interim results should highlight value and ahead of this announcement we rate the shares as a SPECULATIVE BUY.

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