Grays Ecommerce Group Ltd posts big profit jump: Is it time to buy?

Grays Ecommerce Group Ltd (ASX:GEG) owns Australia's dominant online auction site, but competition is fierce.

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What: Grays Ecommerce Group Ltd (ASX: GEG) today reported an incredible 67% increase in earnings before interest, tax, depreciation and amortisation (EBITDA) for the six months to December 31, 2014.

So What: Grays Ecommerce Group Ltd, better known as the operator of Grays Online, Deals Direct, OO.com.au and Top Buy auction and sales websites, reported sales from existing operations of $256 million, up 35%, revenue of $82 million, up 7%, and EBITDA of $5.6 million, up 67%.

The group was formed from the merger between Grays (Aust) Holdings Pty Limited and DealsDirect owner Mnemon Limited in November 2014 and now divides the business into two divisions; business-to-business (B2B) sales and business-to-consumer (B2C) sales. The half-year result was driven by a particularly strong performance from the B2B division.

The division primarily consists of the grays online, grays mining and grays asset services businesses. Grays' clients include major corporations, insolvency practitioners, financiers and banks that are provided access to a full range of valuation and project-management functions. Division revenue surged by 43% and EBITDA rose by 43%, however this growth rate is unlikely to be sustained due to a number of one-off major event insolvency sales.

The B2C division was more subdued, with revenue 7% lower but EBITDA 8% higher than a year previously.

What Now: Grays expects to see operational costs fall over the next six months as the group consolidates staff and warehousing from the merged businesses. Overall, business growth is expected to slow in the second half but earnings are expected to be significantly higher than in 2014.

If I were a shareholder in Grays, I would consider the competitive advantage the group holds over the likes of CatchOfTheDay, OzSale, Kogan, Appliances Online, The Iconic, and the various online clothing stores. The Grays Online brand gives certain types of access to action deals that are fairly unique, but the group's other brands are competing in a tough, low margin industry.

Motley Fool contributor Andrew Mudie does not own shares in any companies mentioned. You can find Andrew on Twitter @andrewmudie

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