Plus 500 – H1 Results

Share Price 571p

Mkt Cap £647m

Conflict Disclosure: No Holding

  • Results Revenues down 42% to $148m. EBITDA down 58% to $65.6m. EPS dps 56% to $0.45. Cash up 4% to $327.3m. ARPU down 42% to $1,044 and customer acquisition cost also down 30% to $1,079. Dividend also down 56% to $0.2734/share.  Importantly Q2 is 23% up on Q1 in terms of new customers and 11% up in terms of active customers, while non EEA countries is now 48% of revenue. While trading is reported to be in line with expectation the outlook is optimistic and the company announces a $50m share buy back
  • Estimates No change given trading is reported to be in line. $180m pre tax anticipated for 2019 which is cents 123 EPS. New 60% payout policy may bring dividend expectation down from 80c to 74c.
  • Valuation PER 5.6. Yield 11%
  • Conclusion The shares are likely to move better as the dust settles post the regulatory changes. H1 has also been a time of low liquidity in markets generally so we can anticipate some more upbeat news over the next 6 months.  Probably a good trade from this level.

H&T Group Plc – H1 Results 

Share Price 341p

Mkt Cap £135m

Conflict Disclosure: No Holding

  • Results PBT up 8% to £6.8m but operating profit pre non-recurring costs up 16% to £8.7m. EPS 15p. Net debt £11.6m. DPS up 7% to 4.7p. The 65 Moneyshop stores have all been integrated. Pledge book was up 12.4% while the net revenue yield was up 3.8%. Scrap sales were down due to the delay in some diamond sales. Retail was up 12% while personal loan book was down 5.3%.  Average gold price was 5% higher over the period. Outlook is “excited” and trading is reported to be in line
  • Estimates 9% revenue growth expected for the full year and 18% PBT growth to £15.9m which is 33.5p EPS.
  • Valuation PER 10.2X yield 3.2%  ROE improving to 11.8% while the price/Book is 1.3X
  • Conclusion For the first time for many years the story is all there for this one.  The stores have expanded introducing a little more gearing while the gold price is looking promising as it reaches new highs. It is up 26% since April. The only disappointment is the personal lending isn’t growing.  I keep getting excited but these numbers read underwhelmingly.  I think it could just be the next 6 months that get exciting.  But I have said that before. It does keep moving to the right.

jeremy@charltonillingworth.co.uk

The Rise of the Trackers

  • This interesting chart from Bloomberg shows the growth in market share of the ETF tracking funds since 2014.
  • Conclusion :  Perhaps Standard Life Aberdeen should look at launching an ETF portfolio. It gets harder to differentiate as fund managers get larger. In this new world only the specialist of the scaled can survive. But the scaled need to be offering cheap products such as ETF’s.  Standard Life Aberdeen are still calling themselves value investors.  Which is the wrong style in a low interest rate world. As well as the product being more expensive than ETF’s.

Burford – Market Manipulation RNS

Share Price 860p

Mkt Cap £1858m

Conflict Disclosure: No Holding

  • Statement Burford has found evidence of market manipulation after a week end when Gotham City publ;ished its concerns over the answers given on the Burford analyst call which included concerns that Burford stated they “are lawyers; therefore we are trustworthy”. I am tempted to do a twitter poll on who agrees with that statement. They believe that spoofing and layering may have occurred. And that share price declines were not caused by actual shares traded.
  • Valuation The shares remain at 1.4X book value, which equates to a PER of 6.8 and yield 1.4%
  • Conclusion It looks like instead of investing in other third party litigation cases they are now intent on investing in their own, thereby rendering the shares almost uninvestable. Especially when the directors have bought stock recently thereby intending to capitalise on this apparent market manipulation.

jeremy@charltonillingworth.co.uk

Flow Trophy

  • With Hargreaves results yesterday the June reporting is complete so the flow trophy can be awarded for the best flows in the quarter to June. The picture is shown on the charts below.
  • Liontrust can step up onto the stage for the second quarter in a row having snatched the trophy back from Polar 6 months ago.  The other award can be collected later by Miton.

Equals Group – Acquisition

Share Price 117p

Mkt Cap £193m

Conflict Disclosure: No Holding

  • Acquisition Hermes FX is acquired for £2m in cash. The founder of Hermes is joining Equals group and subscribing for 1m shares at the current share price of 117.5p/share.  With revenue of £1.8m and PBT of £0.6m this represents 1.1X revenue and 3.3X PBT. Nice price.  The company provides FX to a predominantly corporate client base.
  • Estimates With £10m PBT forecast for Dec 19 and £14m the following year this looks to be c. 5% earnings enhancing.
  • Valuation FY 19 PER 18.4 before earnings enhancement. The company had cash of £7.9m at Dec 18.
  • Conclusion Very useful acquisition. This company will do well and for those that can’t bring themselves to pay 27X for AlphaFX it is a good alternative.  

jeremy@charltonillingworth.co.uk

Burford

Share Price 1121p

Market Cap £2.45bn

Conflict Disclosure: No position

  • Shares Burford are cross. Their shares fell 19% yesterday. Muddy Waters’ tweet below is alleged to be the culprit.
  • Statement from Burford this morning says the company has $400m cash and cash equivalents at 5 August. They state that they are investigating whether market manipulation has occurred and will litigate if this has happened. They say they are “strongly suspicious”. They say companies are largely powerless to intervene in this dynamic.
  • Conclusion In my view their 85% ROIC is overstated relative to LCM and Manolete who make 138% and 180% ROE. However it is still a strong ROE. Just they will need more equity if they continue to grow.  They seem to protest too much. Lets see the 8 am report (if indeed it is Burford) but I doubt they are insolvent. Threatening litigation on an RNS will not endear them to the market.

Standard Life Aberdeen – H1 Results

Share Price 282p

Mkt Cap £6.79bn

Conflict Disclosure: No Holding

  • Results The heart sinks when results come in 4 parts. Adjusted PBT down 10% to £280m but EPS up9% to 8.9p.  Net outflows 2.9% and AUMA up 5% to £577.5bn. Action has been taken to deliver £234m of the targeted £350m cost savings. Core operating profit was down 45% to £142m while share of associates and joint ventures profits almost doubled to £116m. The PBT also includes £22m from increases in the value of seed investments etc. Surplus capital is £900m. The Lloyds settlement is disclosed today which includes a one off payment of £140m which will be taken to P&L in H2. The outlook refers to investing for growth and the strong balance sheet
  • Estimates Full year PBT expectation shows as £600m on Sharepad but with the £140m from Lloyds to come in H2 this will be higher on a one off basis. Going forward forecasts seem to be anticipating 4% PBT growth.
  • Valuation EV/AUM 1.02%. PER 14X yield 7.7%. Price/NAV 1.2X
  • Conclusion The shares are down 16% over the last 12 months.This company feels like it is where Man Group was in 2015 when it was acquiring its way out of its core product becoming dated.  It will take a long time to turn round this asset manager and the temptation is for investors to buy value too early. It is still too early.  

jeremy@charltonillingworth.co.uk

Chart

Over the last 12 years the disparity of equity market returns is remarkable:

  • US: +153%
  • China: +17%
  • France: +14%
  • Japan: +14%
  • Germany: +12%
  • Brazil: +1%
  • UK +1%
  • Spain: -19%
  • Russia: -29%
  • Italy: -39%

(note: total return, in US $)

  • While in Germany mortgage backed bond yields have now gone negative. Which are now cheaper than US treasury debt.
  • It is hard to see yields increasing by the reversal of government policy. But I fancy we could have a different kind of liquidity crisis as the markets way of finding an end to this situation which would increase bond yields and reduce equity markets.



TP ICAP – H1 Results

Share Price 282p

Mkt Cap £1.56bn

Conflict Disclosure: No Holding

  • Results Revenue up 1.3% to £922m. Operating profit up 1.9% to £158m. Margin ticks up from 17% to 17.1%. PBT down 3.6% to £134m and EPS 19.2p. Global Broking was down 6% while the growth businesses of Institutional Services and Data & Analytics aren’t yet big enough to move the needle. Net debt is modest at £80m.  The statement confirms that another £75m of integration savings will be achieved in H2 and the outlook says they are “deep into the process of designing a strategy and so they are confident.
  • Estimates H2 profit estimates are currently lower than H1 which suggests scope to increase FY estimates
  • Valuation FY 19 PER 9.3X yield 6%
  • Conclusion If there was an award for the most boring set of results TP ICAP would be a strong contender. And in current markets boring looks strangely attractive.

jeremy@charltonillingworth.co.uk