I find myself increasingly bullish at the moment. Or maybe I have just had a holiday and by the end of the week it will have gone.  Seemingly macro fears have led to risk aversion. The FTSE 100 is 7.7% down from its peak in May 18, while the FTSE Small Cap index is 18% down over the same period, and AIM is down 21%.  While by and large earnings have gone up over the same period. I am struggling to see a huge recession coming, particularly if we are to get a fiscal injection as Boris throws deficit caution under the bus.  The result is some nice cheap stocks at the smaller end.

Premier Asset Management

Share Price 167p

Mkt Cap £177m

Conflict Disclosure: No Holding

  • Deal A good example of these markets is Premier Asset Management who announced a merger with Miton last week.  The deal included £7m of cost synergies before we start to consider some distribution benefits. In the context of Premier’s £18m PBT estimate for September 2019 and Miton’s estimated £8.3m PBT to December 2019 this is a reasonably material cost saving number. Given the new company will be 70% Premier, 30% Miton the cost saving alone could be 27% enhancing to Premier shareholders.  Admittedly it takes 3 years to deliver the savings but the shares are entirely unchanged since the deal.
  • Conclusion Possibly the market doesn’t think the cost savings will come through. Possibly the increased liquidity in the stock, the increased diversity of the funds and the distribution synergies will amount to nothing.  Or perhaps the share price is wrong.  While I am sure some will find it depressing, but for those with a more sunny outlook on life it may be an opportunity. 

Others

Companies that are either inefficiently priced or doomed that come to mind are:

  • Morses Club                            -PER 9.3 Yield 6.6%
  • Urban Exposure                      – TNAV £135m, Mkt Cap £70m
  • STM                                        – PER 7 Yield 5.3%
  • Plus 500                                  -PER 2.6, Yield 7.7%
  • Provident Financial                 -PER 8.7, Yield 6.7%
  • International Personal Finance-PER 3.2, Yield 12%
  • Orchard Funding                     -PER9.3, Yield 3.9%
  • Arrow Global                           -PER 5.4, Yield 6.6%
  • S&U                                        -PER 9.3, Yield 5.7%
  • Close Brothers                        -PER 9.7, Yield 4.8%

The fact that there are so many lenders on that list suggests the cause may be macro risk aversion.  Either that is right or there is an opportunity. If anyone would like to meet with any of those companies do let me know.

jeremy@charltonillingworth.co.uk