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Good to see Hornby capitalising on Brexit offering to produce a train that reliably gets stuck between stations

RBG Holdings Plc – H1 Results

Share Price 102p

Mkt Cap £88m

Conflict Disclosure: No Holding

  • Results. Revenue up 11.7% to £10.2m. EBITDA up 25.5% to £3.84m and PBT up 12.2% to £3.2m. Net assets £35.3m and cash £8.7m. These % increases are not comparable as they have taken 2 months post IPO for the prior year period and extrapolated for 6 months. Dispute resolution was £6.3m revenue (down 6% on pro forma prior period) and corporate and real estate was down 27% to £1.6m. The first litigation finance revenues have been realised (£2m). Outlook reports a mixed outlook for the legal sector but is confident about the outcome for the year given the traditional H2 weighting.
  • Acquisition The post period end acquisition of Convex was for £22m max consideration if £6m EBITDA is achieved in period to 16 Sept 2020. £13.6m is payable up front based on the £4.3m PBT produced to June 19 this is a multiple of 3.2X.  If the full deferred is paid out this would equate to a 3.7X EBITDA.
  • Estimates Pre tax estimate of £7.2m implies £4m in H2 against £3.2m delivered in H1, before the effect of the acquisition which implies a 45/55 H1 weighting. Given this is a lumpy business lets hope the company has visibility on these revenues.. For 2020 the acquisition adds 45% to EBITDA while increasing the share capital by £13.2m or 15%. Looks like 30% earnings enhancement.
  • Valuation 2019 PER 13.8X, Yield 4.4%. Looking to 2020 and enhancing earnings by say 30% for the acquisition we get a PER of 10X.
  • Conclusion The underlying numbers are actually down and the increase has been manufactured from a sale of a litigation case. Going forward 45% of the profits are expected to come from a lumpy M&A business which is unpredictable which makes this a low PE stock.  This looks like turning out to be a trading stock as the earnings will be lumpy. One to buy on the warning and sell when things are going well. At £88m market cap only smaller investors will be able to pull this off successfully. Other investors may prefer to move on.

One PM – FY Results

Share Price 30p

Mkt Cap £27m

Conflict Disclosure: No Holding

  • Results Revenue up 6% to £31.8m, PBT up 4% to £8.1m. EPS 6.6p. Loan book was down modestly at £141.7m as more new business was brokered. Net assets were £53.8m and net tangible assets £25.5m so ROE is 11.8% and ROTE is 24%. The loan book continues to perform well with net write offs of 0.5% of book and balance sheet provisions of 1.9% of book. Outlook confirms that investment will restrain profit growth in the current year and the group invests for its 5 year plan.
  • Estimates Forecasts anticipate a 7% reduction in EPS in the current year to 6.1p which looks in line with the guidance in the statement.
  • Valuation PER 4.8X, Yield 3%. The shares trade around tangible book value and have delivered 11.8% return on book.
  • Conclusion This is a very cheap share. The revenue yield in the average book is above 20% while the funding costs are 4%.  It is unusual to find such a high yielding book with such low impairments. If this is sustainable the share will do well for a patient investor but with a reduction in earnings this year there may be no hurry.

jeremy@charltonillingworth.co.uk