News

  • Hong Kong Stock Exchange abandons its bid for LSE Group, due to lack of engagement.
  • REFS, that many of us were fed in our early years in the high chair of the investment world have been bought by Slater and Stockopedia.
  • EY reports the quietest quarter for IPO’s in a decade
  • Non Standard Finance appoints Panmure as Joint Broker alongside Shore Capital

Impax Asset Management – AUM Update

Share Price 246p

Mkt Cap £321m

Conflict Disclosure: No Holding

  • Update Net Inflows of 1.6% combined with 1.9% help from the market to increase AUM to £15.05bn over the quarter to September. For the full year AUM is now up 20%.
  • Estimates Forecasts anticipate £17.5m PBT for the year to September and a further 21% growth in the year ahead to £21.1m, EPS 12.7p which look reasonable in the light of 20% AUM growth.
  • Valuation PER 19.4X the year ahead and yield 2%. EV/AUM 2%
  • Conclusion The shares are cheap on an EV/AUM basis and expensive on a PER basis by virtue of the low operating margins the company achieves. Better operational gearing to the environmental theme can be obtained at Liontrust where the PER is 13.4X.

Finncap Group – Trading Update

Share Price 25p

Mkt Cap £43m

Conflict Disclosure: No Holding

  • Update Revenue for the 6 months to 30 September expected to be £14.2m and PBT £1.3m.The statement says 12 new corporate clients have been won, 8 sale mandates completed and 17 new sell side mandates have been won, as well as a debt mandate.
  • Estimates None. Revenue in the year to March 2019 was £25m and PBT £3.2m.
  • Valuation The NAV is £20.6m and if the company can do, say £3m PBT that would equate to a 12% ROE.  It trades at 2.1X book value.  PER using adjusted EPS last year is 8.8X, but adjusted EPS excludes share based payments and includes a nominal tax charge. Numis trades at 9.6X and yields 5.6%, or 1.6X NAV.
  • Conclusion Given current markets this is respectable. But it may take a while for the company to grow into the valuation given profits look likely to decline this year. The graph of brokers revenues below may help with perspective

Randall & Quilter – Revisit

Share Price 208p

Mkt Cap £407m

Conflict Disclosure: I Hold

  • Revisit The shares have risen 12% in the last couple of days on no news save a tip in the Telegraph last week. So it may be worth checking the valuation
  • Estimates In the year to December 2019 PBT is expected to be £41.2m which is entirely from the legacy insurance run off contracts. The program business is not yet contributing to profit. In 2020 this is forecast to decline to £38m as legacy contracts have been busy this year and less are anticipated next year.
  • Valuation The NAV is £302m so the shares now trade at a 32% premium to book value. Stripping out goodwill moves this to a 54% premium to book value.  The company is anticipated to make a 11.5% ROE this year.  If we say the legacy book is worth the NAV of £300m then we are paying £100m for the program business. The company states it expects $1bn of premium income to be put through the program business in 2020. At say 4% commission this would be perhaps £32m of revenue so this implies 3X predicted revenue, which is perhaps about right in the short term, although we may expect the business to grow more than that in the medium term.
  • Conclusion Whether it is the Telegraph tip or the fact that Brexit, from which RQIH’s program business will benefit I am not sure. But the shares have run strongly last week and in the short term may be up with events.  But for those with a medium term perspective these gyrations don’t matter.

Ramsdens Holdings – H1 Pre Close

Share Price 193p

Mkt Cap £60m

Conflict Disclosure: No Holding

  • Update. H1 is reported to be “in line” with expectations. The company has also liquidated some stock to take advantage of the high gold price generating a one off £600k profit. The Money Shop stores acquired are reported to be trading well and the company says it continues to appraise acquisitions in this fragmented market. Outlook is confident.
  • Estimates £7.6m PBT is expected for the year to March 2020 which is EPS of 19p. Including the one off stock profit would add 8% to this. 12% earnings growth is expected in the following year to 21.3p EPS, £8.6m PBT
  • Valuation PER 10.2X March 2020, falling to 9.1X March 2021. Yield 3.1%. ROE is now 17.5% and the shares trade at 1.9X book value
  • Conclusion  All the stars are aligned for the pawnbrokers. Consumer demand, high gold prices, competitors disappearing etc. The shares have gone sideways since early 2018. The last bit of this cycle is the market mistaking this for a growth business and rating it accordingly.  There is more to come.  If it got to 12X the share price would be 250p.

Argentex Group – H1 Trading Update

Share Price 140p

Mkt Cap £158m

Conflict Disclosure: No Holding

  • Update Underlying revenues for this recently listed forex company were up 45% to £13.8m in the 6 months to 30 September. Performance was driven both by client numbers and currency volumes. This is said to “re inforce”confidence in full year estimates.
  • Estimates Forecasts to March 2019 seem to anticipate 20% revenue growth to March 2020 to £26.2m. Having delivered 52.7% of the full year number in H1 this looks very modest. Upgrades can be expected.
  • Valuation Per to March 2020 is 21.2X and yield 1.4%. 34% PBT growth is anticipated in the year to March 2021 bringing the rating down.
  • Conclusion Having come to market in June at 106p the shares are up 32% from IPO. Alpha FX trades at 29X June 2020 and Equals trades at 15.6X Dec 19. This FX space is a hot area and there is a way to run for all of these yet.

jeremy@charltonillingworth.co.uk

News

  • WH Ireland Chairman and a non-exec retiring
  • Nicola Horlick is to stand as an MP for The Liberal democrats for Chelsea and Fulham
  • Calastone tell us that withdrawals from active equity funds are accelerating, with UK and property featuring as firmly out of favour. IA stats are only up to August but confirm the picture

Unicorns

  • The failure of WeCompany IPO looks like a sign of a wider malaise. The Unicorns are looking quite sick and the vet may soon be called out. Dynatrace (on the right hand side) only came to market on Wednesday this week.
  • It may be different this time but when the tech bubble burst the NASDAQ fell 50% between March 2000 and October 2002. The FTSE then also fell 48% from its peak in January 2000 to the trough in March 2003. But then the FTSE index was full of tech names.  Today the FTSE is 3% above the 2000 peak.
  • Back then the good call was to switch into mining stocks.

RBG Holdings – Meeting

Share Price 98p

Mkt Cap £84m

Conflict Disclosure: No Holding

  • Meeting Helpful meeting with RBG management yesterday. The two concerns that I had were confirmed. Firstly they £2m sale of the participation in a case was for the purpose of smoothing numbers which management were open about. They would have preferred not to sell the case but as they had a weak half year it seemed sensible. Secondly that the Convex acquisition may well be lumpy.  Management focus on the higher operating margin and the higher revenue per head than their peers.
  • Valuation  PER 12.7, yield 4.8%
  • Conclusion This reminded me very much of the quoted brokers such as Collins Stewart and Evolution back in the day.  They were high margin, cash generative, ex growth and lumpy.  You could buy them for yield, but with a 60% payout ratio the yield can’t be guaranteed at RBG.  The ability to write up litigation cases to order reminds me of the hamster wheel these litigation funders can find themselves on.  Which is why we should never own a highly valued litigation funder.  I would only want to own this business on a single figure PER, which is 30% lower than here. There is a reason they can acquire Convey at 3.7X EBITDA. This could be a good trading stock to buy on the warning and sell when it is viewed as a growth stock.

jeremy@charltonillingworth.co.uk

News

  • Randall & Quilter recruits KPMG’s Global Head of insurance restructuring as Chief Restructuring Officer.  No doubt tasked to eek some more profits releases from those legacy portfolios.
  • Intermediate Capital appoints Lord Davies of Abersoch as Chairman-Designate
  • STM gets authorisation from The Pension Regulator for its workplace Master Trust. The statement notes that only 39 Master Trusts applied for authorisation from 80 in existence implying there is likely to be further consolidation which STM aims to participate in.

Provident Financial – Revisit

Share Price 404p

Mkt Cap £1025m

Conflict Disclosure: No Holding

  • Revisit Markets have been rangebound for 2 years now and its getting dull. Meanwhile things at some companies have changed a lot. So it may be worth revisiting where Provident stands at the moment. In the H1 results to June Vanquis produced £85m PBT, Moneybarn £15.5m while CCD lost £15.1m. Then central costs of £10.5m were deducted. Vanquis revenue yield has now reduced to 41.6% on the withdrawal of the ROP product while impairments are improving to 15.1% from 15.6%. The run rate of costs has reduced also and the cost income is 49% in H1. Demand is reported to be strong. Moneybarn continues to grow, 26% in H1 while impairments were coming down from 14% to 12.3% while the cost income ratio is 41%. CCD, the loss maker, shrank 30% in H1 although this was reported to be growing again during Q4 following the removal of the 200k non-paying customers. Importantly in this division the loan book duration is shortening which has the double benefit of higher yields and lower impairments.  All these division have the look of having passed through the eye of the needle.
  • Estimates Forecasts anticipate £165m PBT for the full year which implies a modestly better H2 performance.That is 48p EPS. As a reminder the company reported 131p EPS in 2016.
  • Valuation In this sub par year the ROE is 20% while the company is valued at 1.5X book value. IN PE terms that is 8.5X with a 6.6% yield.
  • Conclusion It is not difficult to see a situation where this could double in the next two years from a combination of valuation uplift and earnings improvement. The biggest worry may be that Woodford owns 16% of it still. But it may be time to do a deeper dive and take a look.

Equals Group – New Product

Share Price 86p

Mkt Cap £154m

Conflict Disclosure: No Holding

  • New Product. Equals launches its first live SME loan product using iwoca’s funding. The product is the “CardOneMoney Platinum Business Loan. Credit decisions are made within minutes when customers gat a virtual mastercard which is usable online. The statement says this is a new and “significant” revenue opportunity for the Group and will be the first of many credit-related products they will launch. This follows rapidly on the heels of H1 results which reported Adjusted EBITDA growth of 78% to £4.7m.
  • Estimates Forecasts anticipate £9.8m PBT for the full year which is followed by 54% growth in 2020 fading to 26% in 2021.
  • Valuation PER 14.9X. No dividend.
  • Conclusion  This looks like an opportunity to acquire a small and profitable of Monzo or Revolut growing fast.  The shares are at their lowest for 18 months. The shares are under owned by institutions. Opportunity knocks.

jeremy@charltonillingworth.co.uk

  • Integrafin founder sells 6m shares yesterday at 370p, a 6% discount to the 396p price
  • Manolete CFO steps down now the IPO heavy lifting is done. Replacement comes from RSM.
  • Augmentum announces EUR6m into a German Renter of electronic equipment.

H&T Group  – Acquisition & Update

Share Price 380p

Mkt Cap £151m

Conflict Disclosure: No Holding

  • Acquisition & Update Yesterday at 4.43pm H&T acquired 113 pledge books from Albemarle & Bond which has recently closed all its branches causing much upset to customers unable to redeem their property.  Consideration is £8m and no branches are being transferred. The size of the pledge book is not disclosed. Given the distressed state of the closed business I imagine this would have been a value purchase. The trading update is ahead of expectations with recent acquisitions trading well alongside the strong gold price helping.
  • Estimates Forecasts are for 23% PBT increase in the year to Dec 19 to £16.6m followed by 15% growth £19.1m. EPS grows by 18% in the current year to 34.5p and 15% to 39.1p in 2020.  This looks like the forecasts may be 10% too low.
  • Valuation ROE is expected to increase to 11.8% this year pre yesterday’s acquisition, while the shares trade at a 35% price/book. PER 11X and yield 3%
  • Conclusion Like buses everything comes at once. The gold price is helping, competitors are failing presenting opportunities while there is a stressed consumer requiring the services of a friendly pawnbroker. While it looks set fair the shares have now trebled from their lows in 2013. The valuation improvement has come through and there is probably another two years of upgrades to come.  Its important to remember to sell this one when the market mistakes it for a growth stock.

Kingswood Holdings – H1 Results

Share Price 11.25p

Mkt Cap £25m

Conflict Disclosure: No Holding

  • Results Kingswood announced H1 results showing revenues of £4.2m to June and a small core loss off the back of £1.9bn AUM.  This morning it announces the completion of the Sheffield IFA acquisition.  Recently the company announced an issue of £80m irredeemable convertible preference shares to Pollen Street.  All we need to do is read clause 4.6 of this agreement.  Copied here “in the event that, having completed the sale of all of its Ordinary Shares arising on Conversion, Pollen Street has not realised (pre-tax) sale proceeds equivalent to at least twice the amount it has subscribed for the Convertible Preference Shares (any such shortfall, the “Realisation Shortfall” and the amount so subscribed, the “Aggregate Subscription Amount”), then the Company will pay to Pollen Street an amount equal to the Realisation Shortfall,”
  • Estimates Revenue is expected to be £11.8m in 2019, £13.4m in 2020 and £15.1m in 2021.
  • Valuation The company trades at 2X revenue. But with an £80m acquisition facility I imagine that the shape of the business will be very different to forecasts.
  • Conclusion  I haven’t come across shareholders underwriting convertible holders for a doubling of the share price by 2023 before.  Unusual.