News

  • D2C platform charges Interactive Investor has changed its charging structure increasing flat fees and reducing its trading charges.  It has changed the quarterly £22.50 fee to monthly charges that equate to a rise of 33% for the cheapest service and 160% for the most expensive service. In order to illustrate some value they paid the ever friendly Land Cat to do some research that shows their charges are hugely lower than AJ Bell, Fidelity and Hargreaves Lansdown.
  • The give away that Interactive may be looking to IPO was in their description of their fees as “Netflix” style.  Given recent valuations they may have been better to describe them as “Monzo” style.
  • Lawyers Note –Note out this morning on the six quoted lawyers.  I came away wanting to buy DWF and Gordon Dadds.  Full note is for subscribers. Please email me if you want one.  Annual sub to all notes is £1k+VAT.
  • CMA statement reads aggressively where VPplc have been found guilty of price fixing in a cartel on construction costs.

Premier Asset Management – Trading Update

Share Price 204p

Mkt Cap £209m

Disclosure: No holding

  • Update Net inflows were modest at £3m over the 3 months to 31 March but just enough to claim the 24th successive quarter of net inflows bringing AUM to £6.8bn. AUM was up 6.4% overall with help from markets from £6.4bn at December.
  • Estimates look for a modest reduction in revenue for the year to September 2019 which looks a bit harsh given AUM are up 6% year on year at March. Perhaps a function of having results in the grey days of November
  • Valuation EV/AUM 2.75%. PER12.3X yield 5.6%
  • Conclusion Shares are down 35% from the 310p high last July. That’s the time to buy these fund managers. The only hesitation is that the statement says they have good long term investment performance which is akin to saying short term performance is weak.

jeremy@charltonillingworth.co.uk

As the yield curve is at its lowest since 2008 the valuation bubble derived from low cost funding continues with Monzo now doing a private funding round at a valuation of £2bn. That valuation equates to £1,300 per customer who signs up for a free current account.  They get a “hot coral” debit card. Personally I will be holding the tin hat quietly under the desk for rapid deployment.

Impax Asset Management – AUM update

Share Price 235pp

Mkt Cap £306m

Disclosure No holding

  • Update The first asset manager to report quarterly flows to March is always a good one. Net inflows were 4.6% over the quarter to March. Positive markets meant that total AUM was up 15% to £13.25bn.
  • Estimates Estimates look for 6% revenue growth in the year to September 2019. With AUM up 6% over H1 this looks an undemanding forecast.
  • Valuation PER 19.8 and yield 2%. EV/AUM is low at 2% on account of the low level of profitability of the AUM relative to the scale of the AUM.
  • Conclusion This company has a strong niche in environmental funds and consequently is harvesting AUM rapidly. The low operating margin of 23% is because the costs are too high for the scale of the business. With the business no prioritising shareholder returns I find myself preferring Liontrust which has a strong ESG franchise and consequently strong flows. Liontrust trades at 2.5% EV/AUM and operating margins of 31%.

Fund flows

  • This should be a good quarter for AUM with markets up. The FTSE is up 10.7% since 31 December but retail sales on funds continue to negative as the Investment Association reported last week for the last 5 months.  It could get really quite good if funds flows turned positive.

jeremy@charltonillingworth.co.uk

Avocado

I shall be buying Avocado’s whose price seems to be tracking Bitcoin at the moment. At least Avocado’s downside tastes good.

K3 Capital – Trading Statement

Share Price 160p

Mkt Cap £67m

Disclosure- No holding

  • Statement The large transactions referred to at the time of the interims continue to be at an advanced stage but are taking a long time to close. Consequently the company takes the view they are unlikely to close by their May year end.  The smaller transaction volumes continue to grow.
  • Estimates As a result the company expects the EBITDA for the year to be £4.5m-£5m. Which compares to c.£7m that was anticipated. This compares to £3.1m that was reported at the half year so c. £1.5m EBITDA in H2. £4.5m EBITDA may be in the region of 8.5p EPS vs 13p previously.
  • Valuation PER 18X the downgraded EPS number. The shares have come back from almost halved on the back of concerns over the larger transactions highlighted at the half year.
  • Conclusion The concern in this business has always been lumpy transactions. The business remains an innovative business model which takes market share and the reason for long closure times is entirely rational at the moment. Which implies this is a time to buy the shares as lumpy transactions is a double edged sword.  The shares could test levels towards £1 today. If there is any liquidity at those levels it will be a gift for a buyer.  

Begbies Traynor – Acquisition

Share Price 63p

Mkt Cap £76m

Disclosure No holding

  • Acquisition BSM is an Eastern England commercial property agent and consultant with 38 staff for up to £3m which is expected to be earnings enhancing.
  • Estimates The price is c 1X turnover and 5X profits which represents a 20% return on capital. This looks potentially 15-20% earnings enhancing
  • Valuation PER 12 and yield 4.4%. The reason for the modest valuation is the low ROE because the insolvency business is very heavy on working capital. As its ROC increases through its diversification strategy this will improve
  • Conclusion The ROE enhancing acquisition should deliver a re rating as well as earnings enhancement.  If the acquisition is 15% earnings enhancing we might get 5p odd of EPS and 15X would give 75p.  And who knows Brexit could also deliver a few insolvencies.

jeremy@charltonillingworth.co.uk

The Flow Meter is out this morning for premium subscribers comparing the flows over the last 18 months for Platforms, Asset Managers and Wealth Managers. Also a note on my recent Charles Taylor meeting. Uncomfortable U turn on that. Hope the handbrake cable doesn’t break.

CMC Markets – Downgrade Again

Share Price 84p

Mkt Cap £242m

Disclosure : No holding

  • Warning CMC espect net income to be £110m for the year down 37% on the prior year.
  • Estimates This looks c. 10% below previous estimates
  • Valuation Pre downgrade the shares trade at 9X PER and yield 7%. With a say 10% downgrade the dividend may only just be covered
  • Conclusion It has been uncertain how consumers would react to the ESMA regulation so the uncertainty is understandable. However I note that Plus 500 started Lithium CFD this week and their advertising on my facebook seems to have accelerated. They are on a PER of 5.5X and yield 13%. Could be time for Plus again.

Lighthouse – Bid

Bid Price 33p

Valuation £46m

Disclosure : No Holding

  • Bid – Quilter announces a recommended bit for Lighthouse at 33p per share valuing it at£46m. This follows AFH bidding for it a few years ago unsuccessfully at 13p per share.  It appears the directors were right to reject the AFH bid.
  • Valuation The bid values Lighthouse at 18X 2019 EPS
  • Conclusion The bid looks likely to succeed. And the business will fit well with Quilter who have the ability to use the affinity relationships and the Brighton call centre nationally. Management options were dependent on 31p share price by March 2020.

JTC – FY Results 

Share Price 300p

Mkt Cap £338m

Disclosure No holding

  • Results Revenue up 29% to £77m. Underlying EBITDA up 65% to £23.8m. Adjusted EPS up 33% to 18.4p. Statutory EPS was negative 3.9p. Net debt is £48.7m and a final dividend of 2p is proposed. Outlook – trading is in line and the group sees further opportunities. Divisionally institutional revenue was up 20% and private clients up 43% over the year.
  • Estimates These results are in line with expectations and going forward 28% revenue growth is expected delivering 22p EPS.
  • Valuation PER 13.7 yield 1.8% EV/ EBITDA is 6.6X
  • Conclusion I am sceptical that this acquisition machine delivering alleged organic growth through acquiring businesses and cross selling is unsustainable.  The company strips out £4m of acquisition and integration costs from results but includes the revenue synergy as organic growth which seems like a mis match to me.  But just now it has the wind behind it.

Urban Exposure – FY Results

Share Price 67p

Mkt Cap £106m

Disclosure- No holding

  • Results The first full year results since it May 19 IPO when it raised £150m reveal modest revenues of £3.9m and a small loss of £1.1m while it has committed £525m of bridge funding across 16 loans (£32m each).  Of this £95m has been deployed at “loan to gross development” values of 67%. The minimum income on the loan book over the life of the loans is £43m. Pipeline is £670m loans.
  • Estimates No estimates are published on my system
  • Valuation With a NAV of £151m and £106m mkt cap the shares have disappointed so represent value
  • Conclusion The embedded value is building while the profits will come in the future.  The disappointment appears to be over timing of profits rather than quantum which could represent an opportunity. I look forward to meeting them at the analyst meeting.

jeremy@charltonillingworth.co.uk

Charts

  • Bond/Equity It seems the US bond market is predicting a downturn while the equity market is predicting otherwise. At some point these two markets will reach agreement.
  • I find this chart more comforting when you do financials
  • And small companies too – albeit in the US.

News

  • PFG – announces the CFO is taking 3 months leave for a heart operation
  • NSF –has 50.7% acceptances. Requirement is 90% but this can be waived
  • Liontrust -CEO exercises options and sells 103.8k shares at 592p

Nucleus Financial – FY Results

Share Price 172p

Mkt Cap £131m

Disclosure- No holding

  • Results Average AUA up 13.5% delivered revenue growth of 9.6% on the back of a 3.2% blended revenue yield reduction. Adjusted EBITDA was up 32.9% delivering a 20.8% margin. EPS up 16.7% to 6.3p (2017 5.4p) and the dividend was 3.9p per share, a 62% payout ratio. The outlook says the company is confident in their ability to deliver on future plans.
  • Estimates For the year ahead expectations are for 5% revenue increase and 10% EPS growth following market declines in Q4 so that AUA was up over 2018 only 2.3%. Strong markets in Q1 2019 should make this very undemanding.
  • Valuation PER 24.9, yield 2.7% which is 3.2X sales. Integrafin, which makes a 50% operating margin trades at 28X and yields 2.3% which is 12.6X sales.
  • Conclusion This looks quite pricey for 10% growth while pricing pressure is unlikely to reduce. And the PER differential is modest between Integrafin and Nucleus. Struggling to see any excitement here.