• Bids – After Charles Taylor yesterday and Smith & Williamson going to private equity backed forms we have Statpro today for £161m. Happy Friday.
  • Manolete AGM statement is reassuring with 60 new cases invested and 18 completed since March compared to 12 in H1 2018.

Smith & Williamson – Acquisition by Tilney

Valuation £625m

  • Offer – The price of Smith & Williamson has been agreed with the private equity backed Tilney at £625m. That represents 2.3X the (slightly dated) April 2018 reported turnover.  Or 12.6X Adjusted EBITDA.   
  • Valuation – This is a comparable valuation to Brooks Macdonald and a little lower than Rathbone who looked at Smith & Williamson in 2017.
Mkt Cap Mkt Cap/EBITDA Mkt Cap/Rev  
Brewin 958 10.4 2.9  
Rathbone* 1338 14.6 4.3  
Brooks Macdonald 274 12.3 2.6  
* PBT in place of EBITDA as it is a bank
  • Sector comps The stats below show the typical private equity traits of private equity for Tilney. High operating margins off the back of tightly controlled staff costs and a balance sheet that has been stripped to the bone (net debt £345m).
Tilney Smith & Williamson Brewin Rathbone IM
Year End Dec 18 April 18 Sept 18 Dec 18
AUM (m) 23,000 20,100 42,800 38,500
Clients (k) 100 62 60
Revenue £m 228.9 266.7 329 275.3
Adjusted EBITDA £m 87.4 49.41 83.1 78.8
Costs £m 177.1 218.0 252.3 196.5
Staff Costs £m 88.1 157.5 174.8 104.2
Net inflows p.a 2.50% 2.80% 3.70% 3.40%
Average head count 1133 1722 1763 1296
Revenue yield on avg. AUM 97.4 132.6 79.3 76.3
EBITDA margin 38.2% 18.5% 25.3% 28.6%
Net debt 345.1 280m NAV 274m NAV 464.1m NAV
Staff cost/head (£) 77,700 91,480 99,149 80,401
AUM/head (£m) 20.3 11.67 24.28 29.71
AUM/Client (k) 230 690 642
Client/Head 88 35.2 46.3
Staff cost/other costs (%) 49.7% 72.3% 69.3% 53.0%
Offices 55 12 30 15
  • Conclusion –I wonder if this combination could challenge the traditional models of Brewin and Rathbone, now their AUM are similar. Certainly its easier to pay up when you can strip out the balance sheet while Brewin raised £60m fresh equity last May for acquisitions. This may well put pressure on the traditional models. Certainly for Brewin, whose shares are looking cheap now they are down 20% from their January 2018 peak they run the risk of being a target.

Charles Taylor Plc – Cash Offer

Share Price 235p

Mkt Cap £183m

Conflict Disclosure: No Holding

  • Offer – Cash offer of 315p is a 40% premium from a US private equity firm, Lovell Minnick.
  • Valuation – The offer price represents a PER of 12.3X estimates 2019 earnings.  The company has average debt in the region of £60m, a pension deficit of £28m and deferred consideration of £10.9m at Dec 18.  The EV is therefore £344m, representing a respectable EV/EBITDA multiple of 8.9X.
  • Conclusion –This looks like a good escape for shareholders. The price is not excessive but this complex business will have a limited number of buyers. While the buyers says they will support management I suspect a break up may be the result as there are global firms such as Cunningham Lindsay who would buy the adjusting business which has entirely different dynamics to the high ROE cash cow of the mutual business. A useful end to a 20 year path of value destructive acquisitions. I find myself wondering with the weak pound and low equity markets how many other companies will fall to overseas private equity.

IG Group  – Q1 Results

Share Price 578p

Mkt Cap £2,137m

Conflict Disclosure: I Hold

  • Results – IG Group reports flat revenues on the prior year.  Driven by favourable markets in August and higher active client numbers. The company reports relative to the average quarter of last year as revenue declined over the year and states its performance relative to its stated targets of 3-5% core growth and £100m from significant opportunities by 2022. Core grew 9% above the average of last year and significant opportunities delivered £19.9m revenue in Q1.
  • Estimates – Australian Regulation now causes a threat to forecasts but the guidance remains unchanged. Forecasts seek PBT of £178m to May 2020 which is EPS of 39.2p
  • Valuation – PER 14.8X, Yield 7.5%. Net assets are £26m.  Currently there is no return on those assets.CMC trades at 14.1X and Plus 7.4X
  • Conclusion – There are cynics who doubt the performance of the companies targets, but this provides reassurance. Australia was 15% of revenue last year and this may come under pressure but I suspect all these companies will recover over time. 2022 forecasts are considerably lower than the companies guidance and the company trades at 11.4X the 2022 forecasts.  There may yet be upside on forecasts and in the meantime there is a useful yield.

Begbies Traynor Group – AGM Update

Share Price 75p

Mkt Cap £93m

Conflict Disclosure: No Holding

  • Update All areas have continued to perform well on the back of national insolvency appointments up 9% in the first 6 months of 2019. 
  • Estimates Trading is in line with expectations for £8.5m PBT and 5.5p EPS
  • Valuation PER 13.5X Dec 2019, yield 3.7%
  • Conclusion The ROE is increasing on the back of useful acquisitions while their markets are helping.  This company could have a good year or two ahead. Having raised £8m in July the company could make further enhancing acquisitions. I can see 20% upside.

Gateley – AGM Update

Share  Price 166p

Mkt cap £184m

Conflict Disclosure: I Hold

  • Results Trading in line with expectations
  • Estimates 21% PBT growth expected to £19.4m and EPS 14p
  • Valuation PER 12.6X yield 5.2%
  • Conclusion This company rather prides itself on being dull which it is delivering on. Useful yield. I suspect the share price will follow the earnings.

Tungsten Corp Plc – Q1 Update

Share Price 44p

Mkt Cap £56m

Conflict Disclosure: No Holding

  • Update Revenue in Q1 up 5% to £8.8m which has delivered £1m of EBITDA and an operating profit of £2.3m. Cash is down to £2.2m. Outlook is unchanged
  • Estimates PBT expectations for April 2020 are for £1m PBT which looks light
  • Valuation £38m revenue is expected in 2020, while the company has delivered an 11% margin in Q1. The company has the potential to make high margins given the platform nature of the business. It trades at 1.15X revenue.
  • Conclusion  This company is looking dangerously like it has passed through the eye of the needle.  While we can’t discount entirely the possibility of an equity issue the valuation could double if the current improvements continue.


  • H&T gets a new executive director from Grosvenor Casino’s. With Albemarle & Bond closing their 116 stores at the week end and gold price strength things, I imagine, are going well in the pawn world.
  • GLI Finance reports a £6.1m H1 loss, partly as a result of a £5.2m write down on the fintech ventures portfolio, although the Sancus BMS business also reports a pro forma loss. The company reports £44m NAV although if we write down Fintech ventures to zero and exclude goodwill the tangible NAV is £12m against a market cap of £10m while the company is negotiating how it will repay the remaining £16m of zero preference shares repayable by the end of the year.  

AFH Financial- Acquisition

Share Price 291p

Mkt Cap £124m

Conflict Disclosure: No Holding

  • Acquisition –Broadleaf Financial, based on the Wirral is acquired for £3.2m. The only disclosure is £140m FUM. 2.3% FUM appears in the face of it a reasonable price.  Since the £15m convertible issue the company has committed £10.4m to acquisitions.
  • Valuation – PE is 9.5X October 2019. Harwood Capital trades at 14X October 2019.
  • Conclusion –The convertible issue has triggered a strong derating perhaps on the perception that equity appetite has exhausted.  This is looking like an opportunity

Cenkos – H1 Results

Share Price 45p

Mkt Cap £25m

Conflict Disclosure: No Holding

  • Results – Cenkos reports its first loss since listing off H1 revenues of £10.6m. However the statement says H2 has started well. Cenkos has done 2 of the 7 AIM IPO’s year to date. 110 corporate clients is sufficient scale to be profitable in normal market conditions.  Joe Nally and Paul Hodges come off the board but remain on the executive committee
  • Estimates – None
  • Valuation – Net assets are £26m.  Currently there is no return on those assets.
  • Conclusion – It is no surprise that markets have been quiet in H1.  The call is whether this is a cyclical change or a structural change. My personal view is that AIM has restricted the number of Qualified Executive’s and so price inflation for IPO’s together with aversion to illiquidity and reduced commission resulting from MIFID 2 is causing a structural change. This may be the reason that Oliver Hemsley is taking a look at Zeus.  They will need to move into private company transactions which aren’t mentioned in the statement. In the absence of that NAV may be a full valuation.

Aquis Exchange- H1 Results

Share Price 475p

Mkt Cap £129m

Conflict Disclosure: No Holding

  • Results –.Revenue up 165% to £3.4m and the EBITDA loss was £160k. Cash was £11.2m. The number of trading members is only 29, up from 27, but the company is close to break even and since the year end has agreed to acquire NEX exchange for £1.
  • Estimates. The company is forecast to lose £1m in the year to December 2019 from Revenue of £6.5m, before turning a profit of £2.4m in 2020.
  • Valuation Chi X Europe was taken over 4 years post formation just as it turned profitable for $300m in 2011. Perhaps we shouldn’t concern ourselves that it trades on 53X Dec 2020 earnings.
  • Conclusion My recent meeting was one of those rare meeting you leave genuinely excited.  In excitable moments I am imagining 3X upside until I remember they still only have 29 clients. And I hope NEX exchange can become profitable to disrupt the stranglehold of the expensive NOMAD’s.  It is well financed so I suspect this company will succeed.

K3Capital – FY Results

Share Price 167p

Mkt Cap £71m

Conflict Disclosure: No Holding

  • Results – Revenue was down 18% to £13.6m driven by a reduction in the larger transactions completing. £5m EBITDA is a little ahead of expectations but as previously guided at the top end of the range. Net cash was £5.8m. EPS 9.43p and a reduced dividend maintaining the 80% payout ratio 7.6p DPS. The all important outlook statement has one key line “corporate finance transaction fee income in Q1 20 has exceeded the year FY19”. It concludes the company is “confident”
  • Estimates – £4.6m EBITDA was anticipated for May 2019.  £7.5m EBITDA estimate for 2020 is a big increase and is in tact from the original IPO I believe.  With the lumpy transactions coming through in Q1 we can all relax.
  • Valuation PER 13.9X May 2020 with a yield of 6.9%.
  • Conclusion Goin up

JTC Group – H1 Results

Share Price 475p

Mkt Cap £452m

Conflict Disclosure: No Holding

  • Results Revenue up 32% to £46.6m. Underlying EBITDA up 35% to £14.3m which is a healthy 30.6% EBITDA margin. Net debt is £60.9m, which is a full 1.9X pro forma EBITDA. Organic growth calculated at 8.2% and new business enquiry pipeline of £33.1m. Outlook is confident for 2019 and beyond.
  • Estimates Full year PBT of £28.5m is anticipated, EPS 22.5p, from which a 5.3p dividend is expected.
  • Valuation PER 21X Dec 2019, yield 1.1%
  • Conclusion These are good results.  I really don’t see the structural growth the company refers to so regard this company as an acquisition machine engineering organic growth from cross selling. Consequently with a leveraged balance sheet there could either be a placing or growth slows.  I would be saying thankyou for the 45% share price appreciation this year.

Personal Group – H1 Results

Share  Price 381p

Mkt cap £119m

Conflict Disclosure: I Hold

  • Results Revenue up 42% to £30m. PBT up 5.6% to £4.1m. EPS up 8.6% to 11.4p. DPS up 1.3% to 11.65p and net cash £19.2m. The £4.1m PBT is after a £542k provision release which may be non recurring. Transactional spend over the Hapi platform has increased strongly and the Saas business has increased revenue strongly while the delay in the Sage is holding back growth. The negative well as the slowing down of new business wins in the core insurance business. The new CEO’s strategy aims to double EBITDA by 2025. Outlook states that revenue and PBT are in line with expectations although EBITDA is now expected to be lower.
  • Estimates £10.4m PBT anticipated for FY 2019 which is EPS of 26.2p. Dividend 23.3p. looks full but the company says they are trading in line.
  • Valuation PER 14.5X, Yield 6.3%
  • Conclusion This company has multiple potential exciting new business streams that could transform this into a growth business. But 85% of EBITDA is derived from the core insurance business which is a cash cow.  The shares are valued as a cash cow, seemingly correctly.  The patient investor may be well rewarded as the company transitions but there is no catalyst today.

The Sunday Times had its usual article on St James’ Place this week end ahead of a big week for small cap news:

FY Results from:

  • K3Capital

HY Results from:

  • Aquis Exchange
  • JTC
  • Personal Group
  • Jarvis Securities
  • Distribution Fin. Corp


  • Jupiter
  • Begbies
  • Gateley
  • DWF
  • IG Group
  • Manolete
  • Liontrust

City Of London Inv. Group- FY Results

Share Price 420p

Mkt Cap £111m

Conflict Disclosure: No Holding

  • Results –  FUN $5.4bn at 30 June is up 6% over the year while management fee revenues were down6% to £31.9m and PBT down 11% to £11.4m. EPS down 12% to 34.9p and the full year dividend payment amounts to 40.5p of which 13.5p was a special dividend. The average AUM was down 3% over the year while the fee margin declined 5% to 76 bps while costs increased in part due to the new REIT team joining. The outlook is “optimistic” and hopes for a return to profit growth in the current year. It also encourages all shareholders to both “attend the AGM” and “read the rest of this report”.
  • Estimates Results are in line with estimates and for the current year a 3% improvement in pre tax profit is anticipated to £11.7m. 
  • Valuation EV/AUM is 2.1%. PER 11.5X, Yield 6.4%.  The only share cheaper fund manager on an EV/AUM basis is Premier/Miton at c 2%, while Jupiter trades at 3.3%.
  • Conclusion With Barry Olliff leaving at the end of December combined with a volatile share the shares are cheap.  The company has invested in staff and new teams and I suspect the risks of management change may well turn out to be benefits. The shares could do well, or corporate activity may benefit shareholders

Rosenblatt Group Plc – Acquisition

Share Price 88p

Mkt Cap £71m

Conflict Disclosure: No Holding

  • Acquisition – Rosenblatt is buying a Manchester based corporate finance boutique, Convex Capital Limited for up to £22m, 40% in cash, 60% shares with initial consideration of £13.6m. The company is changing its name to RBG Holdings Plc, as it evolves to become a broad based supplier of professional services.  The acquisition is immediately and materially earnings enhancing. Last year Convex delivered £8.7m revenue and £4.3m PBT, which would make the maximum acquisition cost 5.1X PBT and 2.5X last years revenue. Trading is confirmed to be in line with 1 August update. That update confirmed the corporate division was experiencing delays while overall trading was in line.
  • Estimates The acquisition involves potentially the issue of £13.2m shares, which is 18.6% of the market cap, while adding last year’s Convex PBT increases PBT by almost 60%. That maths suggests 50% plus earnings enhancement
  • Valuation PER 11.9X, Yield 5.1%.
  • Conclusion Rosenblatt has the lumpiest of the lawyer revenues. Adding another unpredictable corporate transaction based business to create earnings enhancement doesn’t necessarily make a good investment. Finncap have done the same with Cavendish. I can’t help but feel there is a reason these corporate finance boutiques don’t float on their own. And to do this at a time when corporate transaction are being delayed according to Rosenblatt’s 1 August statement has a defensive feel. The maths of earnings enhancement is very different to efficient capital allocation.  We can expect a de rating.