Hits: 6


  • Fund fees -Andrew Bailey told MP’s recently that no firm has faced enforcement action over fees transparency.  Which has caused Gina Miller to saddle up the horse called “High” and call for Andrew Bailey’s resignation. She is concerned about article 24 which requires companies to disclose 100% of the charges and costs to consumers. Her firm, SCM Direct has calculated that hidden costs continue to cost consumers £903m per year. 
  • Jupiter – CEO Maarten Slenderbroek is standing down on 1 March 2019. Andrew Formica, previous CEO of Henderson will succeed him as CEO. This has the whiff of the sound of curtains being ruffled in the night following a halving of the share price over the last 12 months. My person tells me the emphasis has moved to distribution and away from product manufacturing to the extent that morale among the fund managers is low.  Andrew Formica, as a previous fund manager and analyst certainly comes from the manufacturing side of the business. 

AFH Financial – Acquisitions 

Share Price 345p

Mkt Cap 146m 

  • Acquisitions Yesterday brought the announcement of the acquisition of £275m of AUM by Punter Southall. A reminder that the financial planning market remains well bid despite weak stock markets. No price was disclosed.  Add to that AFH announcing their new target of £10bn AUM having reached £5bn in yesterdays stellar results there looks to be plenty of future acquisitions to be announced.
  • Firepower If we assume that of the extra £5bn of AUM that AFH is to obtain say £4bn of this will have to be acquired then at a typical 3% of AUM that announces a spend of £120m. But with perhaps only a third of that coming up front that is a cash need of perhaps £40m. Balance sheet net cash at Dec 18 was £18.2m while contingent deferred consideration payable was £11.3m within the next 12 months and a further £17.1m outside of 12 months. 
  • Valuation Currently AFH trades at 2.9% of AUM while achieving a 20.6% operating margin. The forward PER is 11.3 and the yield is 2.76%. This appears cheap for a high growth business as long as the acquisitions can keep coming. 
  • Conclusion The announced a target of £140m revenue and 25% operating margin yesterday which is £35m operating profit, which would put the market cap at a lowly 4X operating profit. The only problem is we have no idea how many shares they will issue to get there. My guess would be a £20m fund raise at 330p may happen soon.

Close Brothers – Trading Update 

Share Price 1562p

Mkt Cap £2.36bn

  • Update “Solid” 6 months. Banking loan book up 3.1% to £7.5bn driven by commercial and premium finance. Impairments remain low and NIM stable. Winterfloods solid but volumes significantly lower than the prior year. 3% decline in AUM despite net inflows. Outlook is “£solid” and well positioned.
  • Estimates Anticipate a 4% reduction in revenue to July 19 followed by a 5% growth in year to May 20.
  • Valuation PER is 11 and yield 3% for 3% EPS growth in current year.to July 19. ROE is 16% which in a low growth environment must be worth 2X book value of 891p per share or 1700p per share
  • Conclusion  The sum of the parts value remains well north of £20 per share and the earnings are barely growing at the moment. If it doesn’t get approached then shareholders can own a quality asset at an attractive price.

IG Group – H1 Results 

Share Price 641p

Mkt Cap £2.36bn

  • Results Net trading revenue down 6% to £251m. Operating profit down 18% to £112m. EPS down 16% to 24.9p. The outlook reiterates that revenue is expected to be down in FY 19 due to the ESMA effects and the exceptional  H2 18 boosted by crypto currencies. Operating costs are budgeted to remain flat at £290m. Growth is expected after May 2019. Dividends will remain stable at 43.2p
  • Estimates Look for EPS to decline 18% for the year to May 19. Given the comparators for H2 will be tougher than the H1 where EPS was down 16% this could still be quite full
  • Valuation PER 12.5X and yield 6.33%.
  • Conclusion  These companies are rather like the tobacco companies. UK and EU declining with growth from Asia Pacific regions. The balance sheet is strong and the ROE is in the 22-28% region. As a value investment we might therefore value the business at 2.5-3.0X book value. That is 570p to 680p per share. The shares are in the middle of that range and getting interesting.

Mortgage Advice Bureau – Trading Update 

Share Price 603p

Mkt Cap £308m

  • Update Revenue for the year up 13% to £123m driven by a 12% increase in average number of advisers and a 1% increase in revenue per adviser. PBT is “broadly” in line with expectations
  • Estimates Market is expected to be flat in the near term. Suspect that estimates will remain unchanged but downside risk seems to be present on results as we haven’t had the word “broadly” used in updates from this company since IPO to describe the numbers. Estimates look for 2019 revenue growth of 17% to £145m
  • Valuation PER 20.6 and yield 4.5%. 
  • Conclusion The buy to let market has slowed. The housing market has slowed. And the switching market may now be slowing on the back of uncertainty. This is a high quality business but uncertainty over short term numbers will cause a de rating

Non Standard Finance – Trading Update 

Share Price 61p

Mkt Cap £193m

  • Update Results to December in line with expectations.  Branch based lending increased its loan book 24.8% and impairments are within the guided range of 20-22%.  Guarantor loans increased the loan book 61.7% to £77.4m and impairments were below the guided range at 19.5%. Home collected increased the net book by 2.1% and imapiements were below the guided range or 33-37% at 32.6%
  • Estimates look for 52% revenue growth and 4p EPS
  • Valuation PER is 8.9X and yield 6.1%
  • Conclusion Earnings look well set to grow but the return on capital employed is coming from a low level. It is difficult to see a high rating given the water under the bridge. Morses Club trades on 10.2X and has stronger prospects on the back of technology. Applying that to NSF estimated 2019 EPS gives 70p per share.