Grays eCommerce a tempting investment
At the start of 2013 I bought some shares in a tiny company called Mnet, which was poised to enter into a flurry of transactions after selling off its previous businesses. Usually I'm wary of such corporate instability but in this case I believe that Mnet has emerged from this fractious period transformed, butterfly-like, into a rather attractive opportunity.
First Mnet changed its name to Mnemon (I'm still not sure how to pronounce that one properly) and its business to online retailing by acquiring Deals Direct and TopBuy.
Then last year Mnemon became Grays eCommerce (ASX: GEG) after merging with online auctioneer Grays, which itself had acquired a more traditional - if that's the right word - online retail business in 2013 called oo.com.au.
Another key piece of the puzzle was announced in October this year, when Grays eCommerce sold off its collection of fixed-price internet retail businesses, leaving it focused on the online auctions business.
If you're a wine drinker, you may already be familiar with the Grays brand. At grayswine.com.au you'll find wine for sale at both fixed prices and by auction (wine was the one fixed-price online retail business that wasn't sold in the October deal).
Grays sells 55,000 cases of wine direct to consumers each month and says it's the third-largest online retailer of wine in Australia, behind Woolies and Coles.
Exact profit figures aren't provided but we know some encouraging things about the wine segment of its business. For starters, revenue was $31 million for the past financial year and 80% of that, or around $25 million, was achieved through online auctions.
In those auctions, the successful bidder pays a 17.5% premium to Grays on top of the final auction price and my understanding is that the seller pays around 20% to Grays. There's also a freight component on which Grays clips the ticket as well.
To read more about Greg Hoffman's analysis of Grays eCommerce, grab a copy of the November issue of Money.
Disclosure: Portfolios managed by Greg Hoffman own shares in Grays eCommerce.