Hits: 7

Quilter Plc –  Lighthouse

Share Price 165p

Mkt Cap £3,164m

Conflict Disclosure: No Holding

  • News Quilter has reached recent highs on the back of stories that Warburg Pincus have held preliminary conversations about taking the firm private at a level a little below the current price. While this week the FCA sent a “Dear CEO” letter to financial advisers regarding behaviour over pension transfers. So its not ideal timing for Lighthouse, who had a network of c 400 advisers to admit to making a “minor technical error” while advising the steelworker to transfer out of their pension.
  • Valuation Current year PE is 16.4X and yield 3% though the shares are cum a £375m return of capital which is c 20p/share. £167m PBT is expected in 2020 which is c 53% advice and wealth and 50% platforms once life assurance is excluded. That looks full to me when I can buy Rathbone on a PER of 15.2 at the moment (cheaper than Brewin)
  • Conclusion Quilter acquired Lighthouse for £46m last April and with the FCA limbering up for some pension scalps it could turn out to have a negative value. Harwood Wealth, which also had a network recently went private at a discount to the screen price. I suspect Warburg Pincus should be nurtured fully. The only certain thing would seem to be Quilter shares are too high.

CMC Markets – Q3 Update

Share Price 160p

Mkt Cap £464m

Conflict Disclosure: No Holding

  • Update Higher client retention in Q3 combined with a good start to Q4 results in operating income to be ahead of the upper end of analyst forecasts.
  • Estimates March 20 expectations are for £39.7m PBT which is 12.5p EPS. Looks like a 5-10% upgrade
  • Valuation PER 12.8X Yield 3.9%. IG trades on 17.4X.
  • Culture I sense the value of having a significant stakeholder at the helm may be under appreciated
  • Conclusion Imagine we entered a world where these CFD clients became longer duration. It may be too early to suggest that but if it did become the case the sector would be re rated. In the meantime with profits set to grow the shares look cheap.

JTC Plc – FY Trading Update

Share Price 425p

Mkt Cap £485m

Conflict Disclosure: No Holding

  • Update Organic growth is said to be 8-10%. Private client services is said to be particularly strong.  A number of interesting M&A opportunities are being seen. Credit facility has been increased to £150m. Results expected to be in line with expectations.
  • Estimates £26.5m PBT is expected to Dec 2020 which is 20.9p EPS. This is expected to grow 14% in 2020.
  • Valuation PER 20X, Yield 1.2%. EV/EBITDA 22X
  • Culture I have an in built mistrust of the private equity background of this company. Organic growth is abnormally high for this stable business and in the past situations such as this have shown a disappearance of organic growth when acquisitions stop. Hence I am seeing this as a quoted private equity style culture.
  • Conclusion  The debt facilities are now 4.4X EBITDA.  Current share prices suggest they could raise equity at this strong valuation but the day the company can’t do that there is plenty of downside.